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Do cryptocurrency exchanges fake trading volumes? An empirical analysis of wash trading based on data mining

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  • Chen, Jialan
  • Lin, Dan
  • Wu, Jiajing

Abstract

Cryptocurrency exchanges, which act as a platform for cryptocurrency trading, play a vital role in the ever-growing cryptocurrency market. However, with the rapid development of this emerging market, some unethical phenomena including faking trading volume have also appeared in cryptocurrency exchanges. To this end, this paper proposes a data mining-based method based on off-chain data and on-chain transaction data to detect the exchanges that fake trading volume. In particular, we first collect off-chain data from the websites of five exchanges and the on-chain data provided by a blockchain browser, and then analyze them from two perspectives, including transaction number and transaction amount. The empirical results suggest that Huobi exchange fakes trading volume most obviously, while Binance trading is relatively the most honest. In addition, different exchanges adopt distinct counterfeiting strategies when creating wash trading.

Suggested Citation

  • Chen, Jialan & Lin, Dan & Wu, Jiajing, 2022. "Do cryptocurrency exchanges fake trading volumes? An empirical analysis of wash trading based on data mining," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 586(C).
    • Handle: RePEc:eee:phsmap:v:586:y:2022:i:c:s0378437121006786
    DOI: 10.1016/j.physa.2021.126405
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    References listed on IDEAS

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    Cited by:

    1. Lin, Dan & Wu, Jiajing & Xuan, Qi & Tse, Chi K., 2022. "Ethereum transaction tracking: Inferring evolution of transaction networks via link prediction," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 600(C).
    2. Zięba, Damian, 2024. "If GPU(time) == money: Sustainable crypto-asset market? Analysis of similarity among crypto-asset financial time series," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 863-912.
    3. Stanis{l}aw Dro.zd.z & Jaros{l}aw Kwapie'n & Marcin Wk{a}torek, 2023. "What is mature and what is still emerging in the cryptocurrency market?," Papers 2305.05751, arXiv.org.
    4. Gu, Zhuoming & Lin, Dan & Wu, Jiajing, 2022. "On-chain analysis-based detection of abnormal transaction amount on cryptocurrency exchanges," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 604(C).
    5. Goel, Rajeev K. & Mazhar, Ummad, 2024. "Cryptocurrency use and tax collections: Direct and indirect channels of influence," Journal of Financial Stability, Elsevier, vol. 72(C).
    6. Baumgartner, Tim & Güttler, André, 2022. "Bitcoin flash crash on May 19, 2021: What did really happen on Binance?," IWH Discussion Papers 25/2022, Halle Institute for Economic Research (IWH).

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