Coinbit, one of the leading cryptocurrency exchanges in South Korea has been seized by local police today due to suspicion of fraudulent activity.
Seoul’s police raided the headquarter of Coinbit on today on suspicion of trading volume manipulation or the so-called wash trading. Coinbit is the third biggest South Korean digital asset exchange and has been accused of trading volume manipulations, reports the local news portal.
According to the report, the exchange could have been inflating 99% of its trading volumes since April 2019. Wash trading is an illegal activity, done by selling and repurchasing the same asset in order to generate the activity and thus increase the asset’s price.
Reportedly, multiple “ghost” (or bot) accounts inside the exchange were used to imitate trading and inflate volume. All of them were related to Coinbit’s owner and chairman Choi Mo and the senior management team.
The investigative journalists of Seoul’s newspaper have been informed about the large scale manipulations on Coinbit by an anonymous insider a few months ago. The undercover investigation together with law enforcement has been conducted since then. As stated in today’s report, the exchange has gained over 100 million Korean won ($84 billion) worth of unfair income, caused by the illegal market manipulation.
According to the news portal, the absolute majority of wash trading transactions (done from August 2019 till May 2020) were done without deposit and withdrawal details. The fraudulent transactions included the major digital currencies like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and Tether (USDT).
Wash trading is a persistent problem
The cryptocurrency industry and trading platforms have once been called the Wild West. Nevertheless, with the growing institutional interest more and more digital asset exchanges adopt regulatory guidelines and bring more transparency to the cryptocurrency market.
Wash trading and similar manipulation practices, however, are still relevant and persistent problems. Trading platforms tend to boost their volumes to get a higher ranking and attract more users and it is still difficult to determine whether reported volume numbers are accurate or exaggerated.
Since choosing the right trading platform is a decision that requires thorough research, the industry also offers new tools like Trusted Volume Framework to identify the legitimate trading volume.
The tool developed by financial analytics Coin Metrics tracks the fake versus real trading volume on crypto exchanges. As it applies three different filters to evaluate the fairness of data, the result reveals the 13 of currently operating cryptocurrency exchanges passed all the tests.