“Putting an exact number on crypto wash trading is much harder than in traditional finance because the markets are so different and decentralized,” says Chen Arad, chief operating officer at Solidus Labs, a crypto-native risk monitoring and market surveillance company.
For example, bitcoin is traded across thousands of platforms that are both centralized and decentralized, regulated and unregulated. This can create new openings for criminals to collude across exchanges and manipulate the market in new and sophisticated crypto-native ways, Arad tells CNBC Make It.
To that point, a little over 50% of daily bitcoin trades being reported are likely fake, according to Forbes’ latest analysis of 157 crypto exchanges across the world. For the study, Forbes analyzed data from four crypto media firms — CoinGecko, Nomics, Messari and CoinMarketCap — as well as multiple crypto exchanges.
Although Cuban cautioned that he didn’t have any specifics to support his prediction, he pointed out that there are supposedly tens of million of dollars in trades for digital tokens that have very little utilization, and he doesn’t see how those types of assets could be so easily converted into cash.
Arad agrees that wash trading is a major issue within the cryptocurrency market. “Without stymying wash trading, crypto will never fulfill its potential to enable more safe and accessible financial services,” he says.
Unfortunately, spotting wash trading on your own is no easy feat. Identifying market manipulation requires specialized technology and deep technical, financial and crypto expertise, says Arad.
But it’s important to note that the crypto industry has made a concerted effort to combat the issue over the years, he says.
“Most regulated exchanges have compliance and surveillance teams larger than in traditional finance and led by expert veterans,” Arad says. “On exchanges that use market surveillance, the rate of wash trading is often just a fraction of a percent.”
The best thing that retail investors can do to protect themselves from falling for a wash trading scheme is to ensure that they only trust regulated crypto platforms that utilize market surveillance technology to detect suspicious trading activity, he says.
This content was originally published here.
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