What is wash trading?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
Wash trading is the same party buying and selling to itself so that volume and interest appear larger than they are. The displayed numbers stop reflecting reality, which misleads exactly the people who rely on volume or rankings. The remedy is to cross-check several indicators rather than trusting one.
Key points
- The same party trades with itself to inflate volume
- Rankings and popularity metrics stop meaning anything
- Cross-check against order book depth and holder counts
- Most jurisdictions treat it as market manipulation
Definition
Matching one's own buy and sell orders so that reported trading volume rises while economic ownership does not change, typically to inflate volume or popularity metrics.
Volume is widely read as evidence that a market has participants. Exchange rankings, token data sites and NFT collection listings all sort by it automatically. Manufacture volume and you effectively buy visibility.
The usual method is trading between accounts or addresses under the same control. Where fees are low — or where trading itself is rewarded — the numbers can be built up at almost no cost. In NFTs, selling a piece to oneself at a high price to prop up an apparent floor is a recognised variant.
As a user, compare volume with things that are harder to fake: order book depth and the number of distinct holders. Heavy volume over a thin book, a high trade count concentrated in a handful of addresses, or a regular drumbeat of identically sized trades are all reasons to distrust the headline figure.
Watch out for
- · Never pick an asset on volume or ranking alone — look at holder counts and book depth too
- · Discount volume figures on venues that reward trading activity itself
- · Treat a run of identically sized trades as a reason to doubt the numbers