South Korea’s Largest Crypto Exchange Raided for Wash Trading $85M

Korea's largest cryptocurrency exchange Coinbit was seized by Korean authorities earlier today for inflating trading volumes.

By · Aug 26, 2020 . 6min read

South Korea Cryptocurrency exchange CoinBit

Today, the Seoul Metropolitan Police Agency has reportedly raided and seized the operations of Coinbit. There are accusations of inflating trading volumes. Coinbit is among South Korea’s largest cryptocurrency exchanges, with 252,000 monthly active users. As reported on Tuesday by the local outlet Seoul News, the local police have seized the crypto exchange’s Gangnam headquarters. It has also seized other physical premises.

The cryptocurrency exchange was adopting “ghost” accounts to inflate the trading volume. The practice is commonly known as wash trading. As per the local news outlet, Coinbit made two exchange accounts holding all user funds. One account wash traded on major cryptocurrencies like Bitcoin, Ethereum, XRP, and Tether trading pairs with “ghost” accounts. The other account was purportedly utilized solely for trading rare altcoins and initial exchange offerings.

As per the report, approximately 99% of Coinbit’s trading volumes emerged from manipulations in the last few months. This illegal means generated an income of at least 100 billion won or $85 Million. The police have accused Coinbit owner Choi Mo and other managers for their involvement in this market manipulation. Along with the wash trading allegations, the authorities are also investigating the feasibility of other malpractice and embezzlement.

Meanwhile, Doo Wan Nam, head of business development in Asia for crypto firm MakerDAO, tweeted about the same.

Regulating Cryptocurrency Exchanges to Eliminate Crypto Wash Trading

Wash trading is indeed a significant problem in the cryptocurrency trading industry. Previously, various established exchanges cited of such malpractices. Some cryptocurrency exchanges use it to gain profits, while others to boost liquidity. In an SEC filing last year, crypto asset management firm Bitwise stated that 95% of Bitcoin trading volumes were fake. On July 20, 2020, in a Statement of Allegations from the OSC, the regulator alleges Coinsquare CEO Cole Diamond, founder Virgile Rostand, and executive Felix Mazer knowingly manipulated markets via fake trading volumes and “authorized, permitted or acquiesced in this conduct” by the firm’s staff. We reported that Coinsquare concluded its settlement meeting with the Ontario Securities Commission (OSC) and agreed to pay $2.2 million. 

In sum, the predicament of wash trading is not likely to be solved overnight. This market malpractice is a regulatory problem and not a data-related problem. However, the market is decentralized, and most cryptocurrency exchanges exist outside a regulator’s reach. In the end, regulating the crypto exchanges may be the only way to eliminate wash trading.

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