- Wash Trading and spoofing are significant problems that cryptocurrency traders face.
- Traders are advocating for rules to prevent malpractices in crypto trading.
- Cryptocurrency trading involves structural and induced risks.
A cryptocurrency analyst has identified Wash Trading as the most significant problem faced by cryptocurrency traders. In his latest post on X, the analyst cited a new research paper by Columbia University, which identified a manipulative trend on Polymarket, the leading cryptocurrency prediction platform.
25% of Polymarket Trades are Inflated
Data from the research paper revealed that approximately 25% of the total volume traded on Polymarket over the past three years was inflated by “artificial trading.” The researchers noted that many traders on Polymarket adopted a rapid, simultaneous buying and selling of the same contracts to portray high liquidity and activity on the platform without assuming real risk or changing their net exposure.
The analyst’s observation triggered a discussion among crypto community members, most of whom are in agreement with the trend of malpractice across trading platforms. A respondent to the analyst’s post noted that wash trading is a lesser problem for the crypto community, compared to spoofing, which is structured to deceive genuine traders and market participants.
Regulation Can Tackle Malpractice in Crypto Trading
According to the respondent, traders can outmaneuver wash trading by riding on the volumes provided by perpetrators. However, spoofing occurs so quickly that only trading platforms or regulators can initiate appropriate conditions to control malpractices of that nature and magnitude.
In the meantime, the respondent proposed a rule that will prevent traders from cancelling orders until after 15 seconds. According to him, it would discourage manipulators from placing orders they do not intend to fill, thereby curtailing their ability to deceive other participants, particularly retail traders playing by the rules.
Two Kinds of Risks in Crypto Trading
It is worth noting that trading in cryptocurrencies involves significant risks. Most of the risks considered are typical and unavoidable; therefore, crypto traders must learn to manage their portfolios. However, artificially engineered risks add to the complications surrounding cryptocurrency trading and investment, leading many users to advocate for institutional support in the form of rules to guide and protect them from avoidable risks.
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