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How to Spot Artificial Volume




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Often times investors are left scratching their heads when they see a small exchange high up the volume ranking on certain websites. The assumption is that some, or a significant amount of these volumes figures are artificially inflated by wash-trading on that exchange. This week, we present a framework that can be used to spot cases of wash-trading, pointing out potential examples of our own on the way.

  • Presenting four tools to spot wash trading

  • Market/Depth Ratio can be used to spot red flags and fake volumes

  • Tick trade analysis used to spot potential wash trading on Bitforex

  • Wide spreads can help identify pairs with fake liquidity

Wash trading was at one point a pervasive problem in cryptocurrency markets. Today, most major exchanges have strict anti-wash trading measures, which has drastically reduced the problem since the ICO-led trading boom of 2017–18. Yet, due to the relatively low barriers to entry for launching an exchange, this type of market manipulation is far from eradicated on lesser-known, unregulated venues.

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Why Wash Trade?

Wash trading is the process of artificially boosting volumes by buying and selling an asset at the exact same time on an exchange. So why would an exchange or token project want to artificially boost volumes?

1) Volume/Depth Ratio

The first port of call for spotting suspicious volume activity should be a ratio using volumes and market depth. In my research, this is one of the fastest ways to spot any red flags for high asset volumes on an exchange. As I’ll discuss shortly, this isn’t a foolproof indicator as some high volume pairs can be driven by organic demand, but it does help us to spot any potential red flags that warrant further investigation.

2) Tick Trades

Using Kaiko’s tick trade data, I was able to chart each individual order for the pairs with the most suspect volume figures. What I was looking out for was any buy and sell orders that would occur at the exact same time for the exact same amount — a surefire indication of wash trading.

3) Volume Patterns

The crypto market is quite broadly correlated, and accordingly volumes between exchanges tend to mirror one another through all market cycles. However, one easy way to spot exchanges where volumes are increased artificially is by examining the pattern of those volumes. If they differ significantly from the standard trend seen on other exchanges, it’s likely there’s something amiss.

4) Spreads

Another red flag for artificial volumes is when an exchange purporting to have high volumes, also has high spreads. High spreads are found in thinly traded, illiquid markets — not those with high volumes. If an exchange has a consistently high spread, that is usually a sign that the market is a lot less liquid than implied by the volumes. On the top exchanges we see spreads close to zero, and approaching zero for the most liquid pairs. Using Bitforex as an example again, we see spreads across all pairs that are far above those offered on some of the top exchanges, despite Bitforex claiming to have more volume on certain pairs.


Using the methods in this analysis we were able to spot suspicious patterns of volume on Bitforex for certain pairs, but it’s highly likely that this type of behavior can be found on other smaller exchanges as well. Investors need to be skeptical of smaller exchanges reporting higher volumes, particularly when the exchanges they are overtaking are regulated or industry leaders.

Data Used In This Analysis

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