Crypto Wash Trading

Arbitrage in the Market for Cryptocurrencies

“…According to Bitwise (2019), 95% of the reported volume on CoinMarketCap in March 2019 was fake. Similarly, Cong et al (2021a) argue that 70% of the volume from unregulated exchanges was fake volume during several months in 2019.…”

Tax-Loss Harvesting with Cryptocurrencies

“…Third, our study adds to a growing literature examining the economics of crypto exchanges and decentralization (e.g., Cong, He, and Li, 2021;Capponi and Jia, 2021;Lehar and Parlour, 2021). Although wash trading has previously been treated by other studies as an endogenous tool to inflate volume to attract demand (Cong et al, 2020;Fusaro and Hougan, 2019;Aloosh and Li, 2021) or to respond to market competition , our paper complements these studies by documenting wash trades as an outcome from intense tax-loss harvesting activities, and by showing that exchange regulation is also important for taxation.…”

“…For 75% of the daily volume and 18.12% of the daily number of trades in the sample are potentially wash trades. Consistent withCong et al (2020), wash trading as a percentage of total volume…”

“…We focus our analysis on a highly liquid pair, Bitcoin (BTC) to either Tether (USDT) or U.S. Dollars (USD), to mitigate the incentives of endogenous wash trading (fake volume, see, e.g., Cong, Li, Tang, and Yang, 2020;Aloosh and Li, 2021;Amiram, Lyandres, and Rabetti, 2022) and underscore wash trading as an indication of tax-loss harvesting activity. 3 We find that exchanges with presence in, or regulated by, the United States exhibit an approximately 30% greater amount of wash trading than international peers following increases in tax scrutiny, and the effects are more pronounced during market downturns and year-ends.…”

Pricing Kernels and Risk Premia implied in Bitcoin Options

“…Aloosh and Li (2019) found evidence for exchange-driven inflated volume, generated by wash trades, to market themselves under the guise of liquidity. Cong et al (2019) reported that, on average, 70% of volume on decentralized exchanges is fake due to the use of wash trading. According to Bitmex (2019), up to 95% of trading volume on unregulated exchanges is generated by wash trading.…”