Neat and funny that they have an uncited figure (the one with the six exchanges with wacky trade size distributions) from research that we did while I was working at Bitwise.
100% - although this time around there is (in my opinion) _a lot more data_ [1] that regulated markets (like CME bitcoin futures) drive price discovery.
[1] There was data back then too, it just wasn't received.
The x-axis is size of trade, and the y-axis is % of trades at a specific size. ExRates had _many_ large trades, which shows up as a significantly different distribution than other exchanges like Coinbase/Bitstamp/Kraken (which had many small trades, and a long tail of larger size trades). See slide 42-44 here: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
I don't think bankrupt is the right word here. It's the opposite. They didn't bankrupt themselves. Their scam was exposed at some point so they stopped doing it. They didn't lose any money. For what we know, the creators may have been quite successful in extracting money from its users, including Bertyar88.
So, the more interesting question to me is how much money BaseFEX actually made from this scam before they turned it off.
I'm at odds with this title. Wash trading is wrong. By presenting something as "wash trading gone wrong", you somehow imply that something could have been right at some point. The content is also flawed:
> It's a cautionary tale for any crypto exchange looking to get ahead by faking volume
Is that news outlet openly writing for fraudsters? What's their next article, 5 best ways to open an illegal casino?
By "wash trading gone wrong", they mean it failed in its objective. The "wrong" here doesn't mean morally wrong, it means "the wrong way to achieve the goal". Much as "a code optimisation gone wrong" doesn't mean it was morally wrong, it means it catastrophically failed to achieve its objective.
Wash trading is illegal, and "wrong" in both senses here...there's no "right way to achieve the goal" if the goal is wash trading. I think it's trying to go for a snarky/satirical tone, but instead it comes across as highly ambiguous.
I think comparing this to code optimization is a category error. It'd be closer to saying "insider trading gone wrong". The opposite of catastrophic failure here is the successful execution of a crime.
If they led with "BaseFEX accidentally bankrupts itself with wash trading scheme", the rest of the content might land a bit better.
The fact that it's hosted on the blog of an options trading product and the statement that the post is "a solid guide for anyone who knows a bit of coding, and wants to take advantage of shady crypto exchanges" also plays a part in the weirdness of the framing, IMO.
Overall, while interesting, it's a mess of a post.
The person talked about morally wrong. Legality, morality, ethics are not the same. The usage seems correct to me. The objective of wash trading to capitalist success happened well enough but not perfectly.
Everything can be technically correct in a terribly written piece. It’s really all about framing and context.
The issue is not really the specific word used. The issue is the overall framing and the ambiguity that the framing introduces.
Now imagine the exchange didn’t bankrupt itself and successfully kept these trades under the radar and then went on to become a popular product.
Some time later, the government catches wind and begins an investigation.
Imagine how odd a story about this would be if framed as: “The dos and don’ts of wash trading”. With content like “do make sure you don’t fall prey to smart Python programmers” and “don’t get caught”.
It’d be a lot weirder than “Popular exchange in trouble after the feds discovered evidence of early wash trading”.
Your side of the argument seems really laboured.
It’s like someone posted an article about how a high stakes jewel heist went wrong for the robbers and a bunch of people are having a go saying “well robbery can never go right because it’s wrong”
It's just interesting. There's nothing wrong with telling people that committing a crime will turn out badly for them. Matt Levine often does the same with insider trading. You're being overly literal.
What turned out badly? They were stopped, but it didn't turn out bad for them, it just stopped being good. They stopped making money, but they kept all the money from the users. It's a typical crypto rug pull.
These are words that are part of laws. Robbery is usually meant to be unlawfully taking private property. Why society in the first place believes we can have so much private property in such an unequal society makes this not a simple concept.
I would be surprised if most people trying to do some semblance of a robbery on a financial institution actually believe they are harming others. If it goes cleanly, who got “hurt”? A bunch of rich people? Insurance?
> I would be surprised if most people trying to do some semblance of a robbery on a financial institution actually believe they are harming others.
I think that most people who are stealing from others probably go to great lengths to contort their thinking such that it makes their theft OK in some way.
If you're engaging in fraud or theft, you are undeniably intending to harm others. Making excuses such as "they can afford it" is not claiming there is no harm, it's claiming that the harm is justified.
You can't decry the Other for acts you commit without remorse or recompense.
Enough with the double standards.
The only ones who can commit "sins" and still hold any moral high ground are "Sin Eaters", but they don't do those things for any personal benefit but rather to correct improper benefits other have received or seek to receive.
The rest of us are just selfish hypocritical trash that should either change our ways or stfu.
This is a wonderful writeup albeit with a sad ending.
> Bertyar88 never managed to withdraw his funds - his account never got unbanned, and his withdrawal was never processed.
> However, he can at least comfort himself with the fact that he single-handedly managed to take down a $100M volume/day crypto exchange - with just $1,000 in savings, and 1,000 lines of Python.
Who said the $1000 was his entire net worth. $1k is in the 'replacing a refrigerator just after its 1 year warranty expired' size of a loss. You'd prefer it not happen; but at least in this case you get a quircky story instead of weeks without a refrigerator.
I was going to fly back to Canada via Buffalo USA and wanted to coordinate a HomeDepot.com pickup order (as I’d be away long enough to get a pretty big duty/tax-free allowance), but that money went to Lowes. Oh well.
Looking at my local hardware store's app, the cheapest refrigerator that offers a water/ice dispenser costs $1048 (including discount, exluding tax/delivery/installation).
The "best seller" refrigerator goes for $1,500. Granted, that is probably more of "model we would most like to sell", but still gives some insight to what the store thinks a reasonable price point for a "typical" unit is.
Unlesd I set the app to sort by price, there are 20 non-sponsered units before one that is below $1k.
Sure, it is not the low end of the market but $1000 is well within the range of prices for refrigerators.
Okay, I forgot this was an American website and your fridges are the size of my kitchen. Water/ice dispenser, seriously... Meanwhile I bought mine 300€ and it's still going strong after five years.
Ever since Trump tariffs on China followed by then COVID shortage mania (everyone and their mom suddenly renovating out of boredom), the base price of basic fridges in the US is around $700 these days and it only goes up.
I did a similar thing with OKEx in 2018. Managed to accrue around $300,000 USD worth of BTC, but only managed to withdraw around $15k before I was permanently banned. Exchanges at the time and since aggressively market make their own books for various reasons, and were generally not careful back then about risk management.
In a strange twist I ended up doing some contract work for OKEx a few years later and was able to confirm some of the details about what they were doing on their end that led to the bad trades.
Yeah it's long story but I deposited a token I was able to mint via a bug I found in the smart contract. It's called "BatchOverflow" if you want to see the details. So no starting capital
OKX used to be quite sketchy but managed to hang around long enough to bring the grown-ups in. I was arbitraging across like 8 exchanges back in 2018 and OKEx definitely gave me the most pause. But, they had minimal verification requirements and leveraged spot trading which opened up a lot of creative trades so I couldn’t resist.
The lesson here is to withdraw funds from shady exchanges as you accumulate them. They probably wouldn't have noticed a 0.1 BTC daily withdrawal, but the 2.7 BTC transaction set off alarm bells.
I thought it was odd that they were smart enough to exploit the bot, but not smart enough to retrieve the money. Most people would have tried to withdraw a bit by bit to prevent alarms from being raised.
He might have not realized the extent of the fake volume. Could have assumed he was a vanishingly small fish whose tiny withdrawal would not be noticed in the noise of an exchange reportedly doing $100MM daily.
I know nothing about these things, but I assume that he would have made a lot less if he were regularly withdrawing profits. Though I would want to at least be doing some withdrawal tests along the way.
In the world of crypto this is superbly prudent all around.
An exchange that otherwise seems legit does a mildly dubious thing at some small risk. Someone notices the slightly dubious things and finds a way to take advantage, risking a small amount of money to test their theory. They make an early withdrawal of their small winnings. The exchange notices that they lost a trivial amount of money, but are exposed to large future losses and decides to stop the bleeding by stopping the dubious thing, and allows themselves to fold up gracefully. Though they weren’t gracious enough to let the person withdraw their funds in the end. Cheap, valuable lessons learned all around.
Market manipulation through wash trading is not "mildly dubious". Your description is incredibly generous, in a way that gives credit where none is due. The wash trading is the exchange equivalent of soliciting for investors while faking massive sales at-cost, which is still major fraud.
I remember having a conversation with a cryptothusiast who said to me "If it's on chain, it's fair game". I had to have the "no dude, we have laws about things like market abuse. You might not know about them, but that doesn't mean they don't exist..." chat
The Code Is Law types are very adamant Code Is Law right until they get fucked.
Personally I say: let them learn the lessons the hard way, we can all stand back and perhaps learn something interesting. See it as an economic sandbox.
Wash trades misrepresent the trading volume, which is a key signal of the interest in and utility of a trading venue. Imagine eBay described itself to investors as having $100billion in trade occur on the platform, but in reality, well over $99billion of it was actually eBay employees posting (even real) items for sale that other eBay employees would then purchase, all on company time and with company cash. Even if the trades are honored and there were actual goods for sale in those listings, it is major securities fraud. If a real securities exchange does wash trades to inflate trading volume, it is major market manipulation/securities fraud (it's illegal if any market participant does it to inflate volume, not just the exchange itself). If a crypto exchange does it, at the very least the normative ethics of the industry should say "that's not good".
> Though they weren’t gracious enough to let the person withdraw their funds in the end
You know this is a crime, right? I mean, everyone's international and anonymous so it has the same relationship to law enforcement as a backstreet dice game, but they did actually defraud this guy.
I figured that was the intention, but "just an ordinary guy without much money" is a nicer way of doing that than describing him as "average Eastern European basement dweller"
In fact the original point of crypto(currencies) is to eliminate counterparty risk by using cryptography and protocols.
But it all break down in exchanges where you just own a balance on an account, rather than actual cryptocurrency secured by your private keys as they are meant to be owned.
its not like btc could ever hope to manage the actual real transaction volume if those exchanges weren't virtual buckets, not to mention the massive fees involved.
There's a thing called Lightning Network nowadays. Solves that obstacle nicely.
Nostr is using it intensively for "zapping" micropayments in BTC to others. Anyways, plenty other coins exist too without high fees, and plenty of people use DEX'es where they remain firmly in control of their money with their own wallets.
The most troubling part of this article was that the website is excluded from the Wayback Machine. Why? How? Isn't it supposed to be a neutral historical archive? How can some sites just decide they don't want to be indexed??
But why would they (should they) honour that? And it doesn't seem their policy there is very clear or explicit. Doesn't it also mean that in cases where a domain changes hands, the new owner would be able to purge the content of the previous owner, etc. etc.? Total lack of transparency around it is concerning.
> Doesn't it also mean that in cases where a domain changes hands, the new owner would be able to purge the content of the previous owner
If the domain changes hands, I don't think they'll approve the removal request unless the new owner can demonstrate that they own the previous contents of the domain as well. You can't send DMCA take down request for content you don't own, right? But I think it's up to the Internet Archive to decide, and they do have DMCA exemption for some class of contents.
I wonder if market manipulation is statistically higher during highs of hype cycles? or is it just always happening?
> Faking volume allowed the site to climb in the rankings on these sites, which exposed it to a greater audience of people, and, ultimately, more customers. Because the site had large volume numbers, potential customers immediately thought that it was legitimate.
It makes me wonder what is happening right now in the AI hype cycle, specifically with regards to faking legitimacy, that we'll look back on as being simple manipulation in 1-2 years time
Yes, every hype cycle brings reckless gamblers and outright conmen, but crypto is remarkable for the high ratio of scams to value produced. This was also true for the real estate boom preceding the 2008 crash, and the invention of stocks in the 1600s. Financial innovation seems to be somewhat riskier than purely technological innovation.
Conmen and literal criminals only go away if you make them go away or they stop making money. There's zero way to prevent any of these boring and antiquated scams from happening, no one to run to when it does happen, and zero way to undo it by design. Crypto people approach this by denying it happens, then that it matters.
Crypto is a holy grail for scammers, fraudsters, and conmen. You can "work" marks that live in an entirely different hemisphere, with no cut taken by whoever would normally get the money to you, the market is chock full of fools, by the very nature of the complete lack of utility of crypto so it's predominantly "true believers" who are obscenely gullible, have been scammed like three times before, and still will DM random people on instagram to get "in" on "the next big thing".
Even Casinos aren't allowed to put their thumbs on the scales this overtly.
"Fake it till you make it" feels like the current AI strategy. Now that the ChatGPT hype cycle has calmed to a simmer, we'll see what real world utility sticks around from the hype cycle.
Statistically it will be higher by definition because market abuse is one of the mechanisms that con artists use to get a hype cycle going. So I would think that from that it follows that if there is a hype cycle it has a higher-than-normal probability to have been generated by market abuse.
The most basic form of this is the "pump and dump" but there are a lot of others. In the crypto world it seems wash trading backwards and forwards to generate volume and inflate perception of market price has been endemic for some time.
>or is it just always happening?
It's happening right now. The BTC to $30k rally is entirely fake. The volume collapsed after 15k and it pumps to 30k with trading volume a 10th of the descent? "Sure".
On the contrary. The best time to manipulate the market is when people are excited and money is running around. During the troughs things tighten up more and people are more concerned with losing money than missing a huge return opportunity.
Any sort of market involves trust. Without it, there would be no "market" ... and no functioning currency.
In the words of Ronald Reagan, "Trust but verify". The problem with crypto --- there is no verification. Noone is watching those running the market. It's all blind trust.
And consequently, the crypto market is a fraudster's paradise.
There is no escaping this. Even peer to peer traders turn to "trust" in the market (aka the "exchanges") to price their crypto. And the crypto market has proven untrustworthy over and over again. This is just another example.
You will trust somebody --- who is it gonna be? Crypto or fiat?
You seem to misunderstand what the term trustless means in blockchain.
It means that you can verify the transactions on the network yourself and don't have to rely on any 3rd party to tell you whether a transaction is valid.
For example, if you want to sell an NFT to someone for 1 ETH, you don't need to rely on any centralized exchange, price oracle, or API endpoint to do that. You can run your own validator or full node, write and deploy a contract to handle to swap, have both parties verify the contract, and then execute it on chain. The parties don't even have to be two people who have ever met or communicated with each other and can work completely independently to execute the trade.
In reality, people do trust others and only the most extreme blockchain supports verify contract code and run nodes, but it's your choice on how much trust you have to rely on.
Sure, centralized exchanges can manipulate token prices, but the price can only be manipulated in the short term, and decentralized exchanges can help create a more honest market where prices are based off of real, transparent order books and every trade has a cost, which makes wash trading more difficult at scale.
It means that you can verify the transactions on the network yourself and don't have to rely on any 3rd party to tell you whether a transaction is valid.
Wait --- so all this stuff I read about not trusting fiat was just wrong? Seems like a lot of crypto bros are confused too.
Sure, centralized exchanges can manipulate token prices, but the price can only be manipulated in the short term
You mean like when the price of Bitcoin shoots up to $60K before it falls back to $20K --- and then the cycle starts all over again?
Who could possibly object to that? After all, it's only short term. What's a little manipulation among friends?
> Wait --- so all this stuff I read about not trusting fiat was just wrong? Seems like a lot of crypto bros are confused too.
You're seeing multiple perspectives and incorrectly attributing them to the idea of "trustlessness". That isn't an issue with cryptobros being confused, that's an issue with you not understanding what trustlessness means.
There are plenty of people in the blockchain space who don't trust fiat, but "trustlessness" was never meant to represent that a 3rd party couldn't manipulate the price.
> You mean like when the price of Bitcoin shoots up to $60K before it falls back to $20K --- and then the cycle starts all over again?
Again, you're focused on price manipulation which was never part of the idea of trustlessness. It was always expected that a market would arise for BTC and ETH because there would be demand due to their decentralized and trustless nature, but nothing was built into those blockchain protocols to stop price manipulation because that isn't a concern.
Trustlessness is all about your ability to independently verify the code you interact with and whether a transaction is finalized or not.
This story is about an exchange which is just another word for bank and doesn't have much to do with crypto besides selling it. You need to trust the exchange/bank.
Crypto itself has decentralized exchanges like Uniswap where you don't have to trust anyone and nobody can cheat or wash trade. DeFi is what crypto is good at and centralized exchanges like this, Coinbase, and Binance are not DeFi.
Coinbase and Binance own Defi too --- by sheer weight of their marketplace presence and fake trading volume.
The proof --- try to find someone selling Bitcoin on Defi for a rate that differs significantly from Coinbase and Binance.
Whoever has the gold makes the rules --- and it ain't DeFi.
Binance and friends/accomplices have all the gold (aka stablecoins) they need to manipulate any coin they choose in whatever way they choose. If they need more, they can just mint some --- no questions asked. They effectively own the crypto market due to the lack of regulation.
If a few lines of code can easily achieve this, then why would some of the big exchanges not have a team (of even 1 engineer) apply this tactic against all the other exchanges?
This would quickly result in washing out all fake volumes across the market.
What the guy was doing was basically just market making. It only went odd here because the exchange bots were making dumb trades against him. Which probably wouldn't happen most places though you never know.
The difference between "true" bitcoin users and these casinos is night-and-day.
Because a bitcoin users and supporters does:
1. Hold your own keys: in other words, never let bitcoin sit on any exchange.
2. buy and hold: what happened to the good-old ethos of saving for a rainy day?
3. dollar-cost-averaging: It simply doesn't matter if today's price is up or down. Just buy a little bit with the $ you can spare, and let it sit for later when you really need it.
I hated crypto ever since I heard about back in 2011.
Having said that. I don't think its going anywhere. Given no recession on the horizon and FED can't hike interest rates anymore infact they are going back to printing more money next year which creates more dumb money to continue playing stupid games like crypto
> Given no recession on the horizon and FED can't hike interest rates anymore infact they are going back to printing more money next year which creates more dumb money to continue playing stupid games like crypto
None of this is true. In fact, just yesterday the Fed indicated there will be at least one more hike this year.
What I mean is that if a transaction is illegal, e.g. sanctions-evading, it remains illegal even if done with cryptocurrency and your likelihood of discovery or prosecution is low.
If you don't need to ask permission to spend your money, then neither does anyone else need permission to spend your money.
Fraud protection (and protection against the bank itself making mistakes) may not be perfect, and will vary by jurisdiction, but it's more than nothing.
Yes, they can be stolen. I trust myself more to hold my keys than I trust the bank to always allow me to spend my money, though. I've never lost my keys, but I have had my bank not allow me to spend my money.
We found 95% of bitcoin trading volume at the time was fake: https://www.wsj.com/articles/most-bitcoin-trading-faked-by-u...