Exchange Bitfinex is suspected of fictitious trade
The BitCrypto'ed blog claims that the Bitfinex Exchange is engaged in a fictional trade (wash trading). The blog article, consisting of two parts, reports on the alleged illegal activities of the exchange. In the first part, the author explains how the process takes place and why it is profitable for the exchange, and in the second - what could push Bitfinex to carry out such operations.
What is fictitious trade?
Fictitious trading (wash trading) occurs when the investor buys a stock / financial instrument from a broker, and then sells it through another broker. This type of trade is a market manipulation and is illegal in most jurisdictions.
In fictitious trading, investors sell and buy securities of their company without any market risk. According to the US Commodity Exchanges Act, fictitious trade is illegal, but according to some sources at the Bitfinex exchange, it takes place. Here's how it can happen on the exchange:
- An order is created for the sale / purchase of bitcoin or any other currency that can be traded on Bitfinex.
- An order is formed, which exactly corresponds to the previous order.
- As a result, trade is carried out within the orders of one user.
At the same time, if fictitious trade was not available on the exchange, then the system should have informed that orders do not comply with the rules. Fictitious trade leads to unexpected market manipulations, moving the course to the side, the manipulator you need - so the exchanges do not allow it to be implemented in the framework of operations on the platform. The BitCrypto'ed blog also provided video evidence that demonstrates what the most obvious forms of fictitious trade look like.
The hidden Bitfinex option?
There have been many discussions regarding the trading mechanisms of some exchanges. It has been repeatedly discussed whether some options are a bug or a deliberate non-compliance with standards. For example, the new exchange platform LedgerX carries out the sale of bitcoin as a crypto-currency derivative regulated by the Commodity Futures Trading Commission. According to the LedgerX API documentation, the exchange rejects orders related to fictitious trade.
Bitfinex does not have a similar mechanism to prevent such operations. The system easily allows investors to sell bitcoins and other crypto-currencies for millions of dollars through fictitious trade, which creates the impression of a higher volume of trading on the exchange and increases the value of the company.
Despite the fact that the trading platform claimed that there were traders on its platform that carry out the fictitious Bitcoin Cash (BCH) trade, the BitCrypto'ed blog notes that the problem in the trading mechanism has not been fixed, although these actions violate the Terms of Service on the platform. Moreover, judging by the interview given by Phil Potter, the director of strategic issues on the exchange, it seems that he believes that there are sufficient grounds for fictitious trade. In addition, it seems that he is aware of the implementation of such operations on the stock exchange.
The blog contains a warning for traders:
"The mechanism that allows fictitious trading on the stock exchange works deliberately. This is not an oversight. This is confirmed by the fact that it was not amended after August 1 ".
Who and why is engaged in fictitious trading on Bitfinex
In the spring of this year, Bitfinex had problems with bank accounts. The reason that the exchange allowed fictitious trade could be its desire to stay afloat, and also that "the trading mechanism was changed after the site lost the support of banks for fictitious trade."
Another possible reason for such illegal operations is money laundering. As suggested in the article, EOS ICO is another suspicious activity by means of which the exchange could directly launder its crypto-currency assets.
BitCrypto'ed recommends "trading with caution," because an impressive increase in the price of bitcoin may be due to fraudulent transactions. At least, when and if there is a price collapse, scammers will naturally be eliminated from the environment.
In fictitious trade with the help of bots previously accused of the stock exchange MtGox, which was closed in February 2014. According to the WizSec group, bots named Willy and Marcus were the cause of the take-off of bitcoin in the fall of 2013, although this has not yet been proven, and the transaction logs of the exchange on which the investigation was based could have been fabricated in order to divert the investigation from real criminals.