More than half of transactions on cryptocurrency exchanges turned out to be manipulation of cryptocurrency
Most transactions on the largest unregulated cryptocurrency exchanges are manipulation of cryptocurrency by groups of related owners. This is according to a report by the National Bureau of Economic Research (NBER).
The authors of the paper, titled “Wash Trading in Cryptocurrencies,” Lin William Tsung of Cornell University in the U.S., Ke Tang and Yang Yang of Tsinghua in Beijing and UK-based Xi Li analyzed a commercial database of 29 of the largest crypto exchanges in the world across jurisdictions to estimate the share of their turnover called wash trading – trading that involves multiple sales of the same asset to each other. In this way, big players can influence the current Bitcoin exchange rate.
“We have found that manipulative trading on an exchange is positively correlated with its cryptocurrency prices in the short term. We also found that exchanges with a longer history of creation and a large user base are less involved in manipulative trading. Lesser-known exchanges, by contrast, have short-term incentives for fictitious trading without attracting too much attention,” the paper said.
It turned out that on regulated exchanges the share of such transactions was less than 3%. Sale of an asset to itself for fake exchange interest is on average 77.5% of analyzed transactions. At the “first tier” exchanges it is less, 53.4 %, at other exchanges – 81.8 %. Also, the annual turnover at the main unregulated exchanges is 54.3% of transactions of “laundering trade”.
The researchers also pointed out that the turnover of cryptocurrency exchanges during the analyzed period was about several trillion dollars.
Another report from the National Bureau of Economic Research found that about 70% of unregulated cryptocurrency exchanges fake trading activity. Unregulated exchanges include Binance, Bitfinex, Bittrex, Huobi, HitBTC, KuCoin,OKEx, Poloniex. Liquid, Zb, as well as smaller trading floors like Exmo, Coinbene, Gate.io and others. It turned out that twelve of the sixteen small crypto exchanges had about 80% of their trading volumes tampered with.
Previously, we reported on why bitcoin rose and what investors predicted.
SEC crackdown on Binance and Coinbase surge DeFi trading volumes 444%
The median trading volume across the top three decentralized exchanges (DEX) jumped 444% in the past 48 hours as crypto investors reeled from the United States securities regulator’s recent legal actions against cryptocurrency exchanges Coinbase and Binance.
According to aggregated data from CoinGecko, total daily trading volumes on Uniswap v3 (Ethereum), Uniswap v3 (Arbitrum) and PancakeSwap v3 (BSC) — which account for 53% of the total DEX trading volume in the last 24 hours — increased by more than $792 million between June 5 and June 7.
Additionally, the trading volume on Curve, a DEX that allows for the trading of stablecoins, spiked by 328%. At the time of writing, the bulk of the trading activity on Curve is focused on trading the U.S. dollar-pegged stablecoins USDC and Tether.
Trading volumes on DEXs briefly surpassed those of Coinbase during May’s memecoin frenzy. Crypto investors rushed to purchase tokens such as Pepe (PEPE) and Turbo (TURBO) through Uniswap and a number of other decentralized protocols as the memecoins were not listed on major centralized exchanges.
As DEX volumes surged, net outflows — the difference between the value of assets entering and exiting the exchange — on Binance reached a staggering $778 million. It’s worth noting that current net outflows are still much lower than the exchange’s total reserve. At the time of writing, Binance maintained a stablecoin balance of more than $8 billion.
The market frenzy comes amid a swathe of legal action against crypto exchanges by the Securities and Exchange Commission (SEC). On June 6, the SEC sued Coinbase alleging it offered unregistered securities and acted as an unregistered securities broker among other charges.
A day earlier on June 5, the SEC sued Binance, Binance.US and Binance CEO Changpeng Zhao (CZ) under similar allegations. The SEC alleged Binance failed to register as a securities exchange and was therefore illegally operating in the U.S.. According to the charges Zhao was sued as a “controlling person.”
SEC lawsuits squeeze net worths of Coinbase and Binance CEOs
The net worths of Coinbase CEO Brian Armstrong and Binance CEO Changpeng Zhao (CZ) have suffered heavy blows due to recent lawsuits by the United States securities regulator.
Armstrong’s net worth was slashed by $289 million and Zhao’s by $1.33 billion within a span of 30 hours after the Securities Exchange Commission (SEC) sued Binance on June 5 and then Coinbase on June 6, according to data from the Bloomberg Billionaires Index and Forbes.
Zhao — the richest man in the crypto industry and the 54th richest person overall — had his net worth fall 5.1% to $26 billion this week.
While the Binance CEO’s net worth has rebounded by over 106% this year, he is still down over 73% from his highest net worth of $96.9 billion in January 2022.
Armstrong is ranked as the 1,409th richest person by Forbes and took the bigger hit from the SEC’s latest action with his net worth falling 11.8% to $2.2 billion.
The Coinbase CEO has managed to reap the rewards of a market rebound this year, with a 61% increase in net worth over that time.
Despite the recent fall, Zhao and Armstrong have seen net worth increases well above the 9% year-to-date returns for others on Bloomberg’s rich list.
The SEC sued both Binance and Coinbase, alleging the exchanges broke various securities rules, most notably for purportedly offering cryptocurrencies that the regulator considers to be unregistered securities.
Following the lawsuits, a total of 67 cryptocurrencies have now been classed as securities by the SEC.
Binance and Coinbase have both confirmed they will “vigorously” defend the lawsuits laid against them.
US tightens crackdown on crypto with lawsuits against Coinbase, Binance
The top U.S. securities regulator sued cryptocurrency platform Coinbase (NASDAQ:COIN) on Tuesday, the second lawsuit in two days against a major crypto exchange, in a dramatic escalation of a crackdown on the industry and one that could dramatically transform a market that has largely operated outside regulation.
The U.S. Securities and Exchange Commission (SEC) on Monday took aim at Binance, the world’s largest cryptocurrency exchange. The SEC accuses Binance and its CEO Changpeng Zhao of operating a “web of deception”.
If successful, the lawsuits could transform the crypto market by successfully asserting the SEC’s jurisdiction over the industry which for years has argued that tokens do not constitute securities and should not be regulated by the SEC.
“The two cases are different, but overlap and point in the same direction: the SEC’s increasingly aggressive campaign to bring cryptocurrencies under the jurisdiction of the federal securities laws,” said Kevin O’Brien, a partner at Ford O’Brien Landy and a former federal prosecutor, adding, however, that the SEC has not previously taken on such major crypto players.
“If the SEC prevails in either case, the cryptocurrency industry will be transformed.”
In its complaint filed in Manhattan federal court, the SEC said Coinbase has since at least 2019 made billions of dollars by operating as a middleman on crypto transactions, while evading disclosure requirements meant to protect investors.
The SEC said Coinbase traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano and Polygon.
Coinbase suffered about $1.28 billion of net customer outflows following the lawsuit, according to initial estimates from data firm Nansen. Shares of Coinbase’s parent Coinbase Global Inc closed down $7.10, or 12.1%, at $51.61 after earlier falling as much as 20.9%. They are up 46% this year.
Paul Grewal, Coinbase’s general counsel, in a statement said the company will continue operating as usual and has “demonstrated commitment to compliance.”
Oanda senior market analyst Ed Moya said the SEC “looks like it’s playing Whac-A-Mole with crypto exchanges,” and because most exchanges offer a range of tokens that operate on blockchain protocols targeted by regulators, “it seems like this is just the beginning.”
Leading cryptocurrency bitcoin has been a paradoxical beneficiary of the crackdown.
After an initial plunge to a nearly three-month low of $25,350 following the Binance suit, bitcoin rebounded by more than $2,000, exceeding the previous day’s high. It was trading just below $27,000 at 0410 GMT.
“The SEC is making life nearly impossible for several altcoins and that is actually driving some crypto traders back into bitcoin,” explained Oanda’s Moya.
BROKER, EXCHANGE CRACKDOWN
Securities, as opposed to other assets such as commodities, are strictly regulated and require detailed disclosures to inform investors of potential risks. The Securities Act of 1933 outlined a definition of the term “security,” yet many experts rely on two U.S. Supreme Court cases to determine if an investment product constitutes a security.
SEC Chair Gary Gensler has long said tokens constitute securities and has steadily asserted its authority over the crypto market, focusing initially on the sale of tokens and interest-bearing crypto products. More recently, it has taken aim at unregistered crypto broker dealer, exchange trading and clearing activity.
While a few crypto companies are licensed as alternative system trading systems, a type of trading platform used by brokers to trade listed securities, no crypto platform operates as a full-blown stock exchange. The SEC also this year sued Beaxy Digital and Bittrex Global for failing to register as an exchange, clearing house and broker.
“The whole business model is built on a noncompliance with the U.S. securities laws and we’re asking them to come into compliance,” Gensler told CNBC.
Crypto companies refute that tokens meet the definition of a security, say the SEC’s rules are ambiguous, and that the SEC is overstepping its authority in trying to regulate them. Still, many companies have boosted compliance, shelved products and expanded outside the country in response to the crackdown.
Kristin Smith, CEO of the Blockchain Association trade group, rejected Gensler’s efforts to oversee the industry.
“We’re confident the courts will prove Chair Gensler wrong in due time,” she said.
Founded in 2012, Coinbase recently served more than 108 million customers and ended March with $130 billion of customer crypto assets and funds on its balance sheet. Transactions generated 75% of its $3.15 billion of net revenue last year.
Tuesday’s SEC lawsuit seeks civil fines, the recouping of ill-gotten gains and injunctive relief.
On Monday, the SEC accused Binance of inflating trading volumes, diverting customer funds, improperly commingling assets, failing to restrict U.S. customers from its platform, and misleading customers about its controls.
Binance pledged to vigorously defend itself against the lawsuit, which it said reflected the SEC’s “misguided and conscious refusal” to provide clarity to the crypto industry.
Customers pulled around $790 million from Binance and its U.S. affiliate following the lawsuit, Nansen said.
On Tuesday, the SEC filed a motion to freeze assets belonging to Binance.US, Binance’s U.S. affiliate. The holding company of Binance is based in the Cayman Islands.
“It’s important to note that recent regulatory actions are aimed at ensuring that companies operating in the cryptocurrency industry are complying with securities laws and protecting investors – this will always be their goal,” said Joshua Chu, group chief risk officer at blockchain technology firms XBE, Coinllectibles and Marvion.
“These events will ultimately lead to a more stable and trustworthy industry, which could help to attract more institutional investors and mainstream adoption.»
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