So there have been a few reports recently that have spurred conversation about fake volume in the crypto space. Specifically I the Bitwise report and the Alameda report. Fake volume is obviously happening, we all know it. But I was hoping to bring some light to quick and easy ways to read order books and get a quick idea of obviously fake volume. This is really helpful to know which exchanges are faking as well as which projects might be experiencing market manipulation by wash trading.For some background on Wash Trading: This is when someone trades with themselves, causing no real trade to actually happen since no funds actually change hands. This is often done by placing simultaneous orders for identical price and size so it never has a chance to match with something on the orderbook. This is extremely unethical and considered very illegal in finance.Reason for wash trading:1) Exchange want to pump up their volumes so they run a bot to do this.2) A project wants to pump up their volumes so they run a bot to do this. This is probably done with the permission of the exchange since it would be very very obvious if they pay any attention.3) A targeted strategy by a market maker to entice folks to buy or sell, this is generally a precursor to a pump and dump. If you notice a ton of coin volume out of nowhere and it seems all obviously fake, be very careful of the P&D.So there are two methods which work well for this that are very easy and can help you identify quickly. I will use QNT on Hotbit right now, as QNT is a hot topic and Hotbit is obviously fake.LinkMethod One: Trades off the BBOLinkTrades happen on an orderbook of bids and offers. The best bid and offer (BBO) represents the spread on the market. In the example below, the best bid is 0.0009 BTC and the offer is 0.00103. Given that means someone is willing to buy at 0.0009 and sell at 0.00103 you would expect a trade between those two to be impossible. In fact, a trade prints right at the midpoint between them at 0.00099337 This is basically impossible since no one was willing to buy there. This is almost certainly not real, since this order was never on the book and is just a lazy attempt to take the mid and print a wash trade there.Method 2: Book DepthLink Notice that this trade size is pretty nuts. It is a sell order of 103 QNT. The book is not very deep on the buy side and no one was willing to buy that much QNT for a lot of levels, check out the highlighted size on the book. This is another indicator that the volume is fake, they are constantly print more size than the orderbook has appetite for.I hope this help! Feel free to ask me some questions.
Submitted July 06, 2019 at 04:13PM
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