Bithumb Under The Blockchain Microscope As $250 Million Wash Trading Rumors Swirl

Bithumb, a cryptocurrency exchange based in South Korea, has been on the eye of the hurricane lately as it is being accused of being exploited by a group of traders who have been creating a fake trade volume. The allegations state that the volume of wash trading made on the company’s site can be the equivalent of more than $250 million USD a day.

The first person to be suspicious was a trader named Alex Kruger in September 2. He pointed out some suspicious activities on the order books of Bithumb. He stated that the illicit trading started every day at 11 am on Korea Standard Time since August 25. This was the time when Bithumb launched its new promotional offer.

Bithumb’s promotion rewarded users with a 120 percent fee payback in airdrop tokens but the traders were limited to $900,000 USD per day. However, it looked like some traders exploited the rules using wash trading.

Wash trading, in case you are not familiar with the term, is a fake trade to generate trade orders that are canceled shortly after they are ordered. The practice is illegal and they used it to win the free rebates.

Most stock exchanges in the world have banned this type of practice and some countries even list wash trading as a crime. However, this happens from time to time in the crypto space due to lack of regulation.

Alex Kruger embedded a chart that showed a huge spike in trades every day at exactly 11 am KST. As he pointed out, this level of volume was unusual and simply could not be mistaken for normal trading activity, not even bullish action, which would normally lead investors to trade more. The wash traders were able to make at least $150,000 USD a day using this illegal practice.

An Endemic Problem In The Crypto Market

Unfortunately, Bithumb is not alone and wash trading is a lot more common in the crypto market than honest traders would like it to be. As the issue is rather endemic and most trading regulations have not fixed this problem in this market yet (and the market is very anonymous, too) the problem persists.

The company also have little incentive to actually do something as they earn more on the fees of the trades and have no reason, other than ethical ones, to crack down on the wash traders. Fortunately, companies tend to do something once this generates bad press and this is exactly what is happening with Bithumb at the moment.

Bihumb is not alone in having suspicious activities. Bitfinex recently had a “server malfunction” that raised the value of BTC by $100 USD a piece at the exact same day that CME’s Bitcoin futures contracts expired.

While there is generally no clear evidence when wash trading and other price manipulations happen in the crypto industry, institutional investors are entering the market and regulations will soon start to give these exchanges nightmares as they are put in effect.