Although it is not a new insight that 95% of Bitcoin trading volume globally is fake, one can’t help but become a bit cynical on learning that university students are actually running a business hiring their services as wash traders for smaller cryptocurrencies. We all need to pay the loans, particularly the student loans which today’s society shackles us with for decades, so for a twenty year old to run a less than ethical company that programs bots to trade your token so that its volume is inflated, seems understandable.

Fighting crime with crime

This is what Alexey Andryunin, a major in Applied Mathematics at Moscow State University, is doing. He runs a company called Gotbit with one other member who codes the trading bots. And they are not the only ones. Numerous of these types of companies exist in today’s unregulated crypto industry. Bright college students can’t be bothered to attend classes any more, they are all obsessed with cryptocurrency, according to Alexey, since there is money to be made.

And since white collar crime is rampant, why not tap in too?

The ICO craze that crashed and burned

They started their nefarious service back in 2018, when the ICO craze was at its height. New tokens were being launched by the hundreds and naturally they all wanted to get listed on CoinMarketCap, the premier cryptocurrency listing website. But in order to do that they needed to be listed on two exchanges first. Often the ICO project was nothing more than a few people with a white paper and an idea, yet zero actual product or service.

They may have lured some big angel investors who were gambling on the next big thing in crypto, back in the day when anything with the name “blockchain” on it, looked like it was going to the moon.

Fake it ’til you make it

In order to launch the project, and thus attract new retail investors and traders, the new ICO had to get onto an exchange, any small exchange that accepted the myriad of unknown tokens. This is where they would call Alexey or others in the industry to come and create fake volume on the exchange for them.

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And the exchanges don’t object because it is highly beneficial for them to show trading volume too, so everyone on the inside was in on the big fat scam. That is what it is essentially, where the motto is “fake it ’til you make it”. And the small retail trader, as well as the big investor, is none the wiser.

After all, it’s such a new industry that there are bound to be “noobs” entering daily, looking for the fast track to the massive profits seen in the crypto industry.

Crypto not immune to white collar crime

So Alexey’s company would be hired to programme bots to trade the token back and forth with each other, making it look as if the coin is being actively traded. Once this volume looks high enough on two little exchanges, the token can then attain the holy grail for cryptos and be listed on CoinMarketCap, where it can be seen by other big investors and the public at large. And Alexey himself will admit that this is illegal and unethical, but that is the way the capitalist system has been engineered today – profit above morals – and crypto is non-different.

Real crypto enthusiasts praise the technology for being the panacea to the ills of mainstream banking and economics, but wherever there is money we will find illegal efforts to obtain it. Even in crypto, unfortunately.

There are real gems among the trash

That being said, not all crypto is corrupt. And the astute observer can actually spot fake wash trading when looking at the order book.

“One can also look at the trade interval and trade size to detect common recurring patterns to find wash-trading activities.”

Bobby Ong, CEO of crypto ranking portal @coingecko

Nevertheless, Alexey will sell you his illegal wash trading services for $8 000 to get listed, $6 000 for a month of fake trading volume via algorithmic bots and $15 000 to get listed on CoinMarketCap. And the small exchanges are quite happy to facilitate it since they would die without this fake volume. If you see some unknown token trading on an exchange with more volume than Bitcoin, then you know is is being faked by bots.

Even exchanges like Hotbit in Shanghai and BitForex in Hong Kong are involved. Most exchanges simply charge two Bitcoin (about $20 000) to list a token, no questions asked. Everyone wants to rake in the profits so ethics comes second, as do the lives of potential investors ruined by this kind of crime.

CMC are not always a filter either

Even CoinMarketCap are not going to ask questions of a new token. They just want to list as many blockchain projects as possible, so there is no ethical filtering for traders like us. You have to do your own research and actually expect the worst until you are otherwise convinced. Fortunately some users do sometimes submit suspicious activity to CMC and these reviews are taken seriously.

Crash and burn confirmed

You can imagine a new ICO that has just received some big funding and they then have to keep these investors happy or at least allow them to dump their newly acquired tokens on other unsuspecting traders, as is the practice in crypto. Naturally most ICOs care about their projects and want them to succeed. Not all are scams from the start. But Alexey himself will tell you that only 10% of them are really creating some value, or have a working product.

The rest just need to survive for a few months on fake volume, giving their investors time to cash out, after which time the price will plunge. Some then close down a few months later, never to be hear of again.

This is why we are repeatedly reminded that 90% of ICOs fail, and why Bitcoin is the safest investment in the crypto industry, along with the few top listed tokens that actually have a working product. That said, Alexey mentions how one of his clients even made it to the top 100 of CMC, so buyer beware. He only deals in ERC-20 tokens built on Ethereum, since the bots can then monitor Etherscan to know when a real trade order is being made, and work around it.

Regulation is actually required

Fortunately this kind of illegal activity of herding unsuspecting traders like sheep into trades and fleecing them via bots is on the way out as tighter regulation arrives. Let’s not be naive and think that the unregulated crypto market is better. We all want to be free of government and banking control, but we also need to be protected from insider crime, where thousands of traders become victims to criminals as bad as the government and banks, who are the biggest criminals of all. This is where KYC and other such ID verification may be necessary.

Conclusion

Alexey knows this and is ultimately going to wind down his wash trading service, though others may jump into the vacuum left with smarter bots and equal greed. So we can never be too careful in crypto. There is often little that can be done to help you if you fall victim to this or any other sort of scam in the industry. Therefore it is most important to do your own research because, despite the cynicism it invokes, and the many risks, long term investing in Bitcoin has proven to be the most profitable road to success ever seen since the gold rush of the Wild West.

Just watch out for Billy the Kid.