ADSactly Crypto: What Does Wash Trading Mean In Cryptocurrency?

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What Does Wash Trading Mean In Cryptocurrency?
When it comes to cryptocurrency we've often thrown with several terms and numbers and it can be pretty hard for the average user to understand what they all mean and we're always looking for simplification. This yearning for simplification has seen certain numbers become popular metrics for judging the success of a cryptocurrency as well as how it is progressing. Those numbers are normally

  • Market cap
  • Coin value
  • Transactions on the network
  • Active wallets/users on the network

You can hop over to any coin data aggregator like @coingecko to find most of that information. Many novice cryptocurrency holders look at these figures and base how they are going to invest and where they are going to invest, which is why there is an incentive to fudge these numbers and massage them to attract investor capital.

One way to manipulate your cryptocurrency is through wash trading, which has been a popular tactic for many coins especially during the bull run of 2017. The practice has died down since then in relative terms but it doesn't mean it been completely removed from the ecosystem and still thrives in obscure parts of the blockchain space.

What is crypto wash trading

Image source: - cryptocurrencyhub.io

What is wash trading?

Wash trading is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace. First, an investor will place a sell order, then place a buy order to buy from themself, or vice versa

Wash trading is used to move the price up or down depending on the goals of the company while also improving the amount of trade volume per day and make the coin seem more actively traded than it actually is propping it up and making it more attractive to investors.

In some cases, we've even seen collusion with exchanges to assist in wash trading or actively misreport the data on a certain coin.

Why is wash trading so popular

Have you ever heard of the term fake it until you make it? Well that's primarily the reason why coins try to wash trade. To give off the appearance of being highly active and having ample liquidity in order to attract traders onto their platform.

While there is no direct financial harm observable for traders on platforms that engage in wash trading — the lack of meaningful market data can fool traders.

This could get investors to jump on a coin while its "hot" and encourage them into taking positions in illiquid tokens without realising that there is possibly no significant market activity available at all.

Keeping your eyes open

It's important to do your research before purchasing any coin and review multiple data sources and both positive and negative sentiment about a specific coin. Don't simply invest based on numbers, especially one or two basic figures and look at other fundamentals such as GitHub commits, partnerships, use cases and much more.

Written by @chekohler

Sources

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8 comments
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That's pretty useful to know - had heard the term before but didn't know what it meant although it sounded shady. Makes sense and seems like my instinct was right haha! Nice one @chekohler on getting featured here as well

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Lol the whole crypto world is shady if you start to dig into it, they count on us not doing any research and following the hype and I’m here to say I will sooner lay you and your project into this baron earth than entertain these fake numbers for a moment longer!

I actually had this argument with 3 BCH SV peeps on LinkedIn and they tried so bad to shill their shit coin

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Hahaha, you should do a series called "Chekohler Roasts"!

Oh I just noticed you're no longer in Club 69, better start flagging you to bring you back to the Playboy Mansion

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LOL it’s not for my lack of trying I still downvoted a fair bit so I get them back too! I’m still 69 on steem and I think will forever be that

I never thought I’d ever be a 70 rep when I got started lol imagine little old me?

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Haha, yeah there's no-one really left on Steem since to upvote you unless you become a witness running 22.8888 or whatever it is!

Congrats on level 70, I have just 0.1 left to go on both Hive and Steem. I'm going to make it my mission to get there on both before checking out of Steem and orca-ing it up on Hive.

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As on other occasions, thank you for enlightening us with regard to this facet of the cryptocurrency market. Obviously, there is also such manipulation in the non-virtual market. I believe that the market economy (I will not say capitalist, since there is no other) is not exactly a transparent lake, and we are exposed to all kinds of manoeuvres and traps. We have to be very careful. Greetings, @chekohler.

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Oh I agree there are so many facets of the traditional financial system that is manipulated I wouldn’t even know where to start! If you follow mu blog you’ll see I take the traditional system on one piece at a time

What bothers me is blockchain was supposed to be a chance to change these things but it seems they creeping into the space and we need to find ways to stamp it out or at least recognize manipulation

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