The crypto industry has grown substantially over the years, and the market for cryptocurrencies is one that never sleeps. With growing demand, the number of crypto exchanges has also grown. While a handful of the leading exchanges capture most of the crypto market, new exchanges pop up every other day looking to draw in customers.
However, sometimes these platforms have been found practicing Wash trading. It is the process via which exchanges are able to generate fake volume giving the impression that the platform is a lot more liquid than it actually is. The practice is illegal in traditional asset markets due to its propensity for price manipulation.
A 2019 Forbes report claimed that popular crypto price tracker CoinMarketCap (CMC) showed $6 billion per day in bitcoin trading volume, but in reality, only 4.5% of the reported amount was actually traded. While crypto enthusiasts flock to CMC for relevant data, a significant portion of the trading volume reported on the website was said to be fake.
In the most recent event, Canadian crypto exchange Coinsquare and its top executives have been accused of practicing wash trading, according to leaked documents presented by Vice on June 13.
The report presented leaked emails, Slack messages, and other files that the publication claimed to have obtained, accusing the exchange’s CEO Cole Diamond of wash trading.
Most of the leaked documents show Cole asking employees to practice wash trading, while employees were uncomfortable with it, fearing regulatory retaliation.
The report shows a slack conversation between Cole and one of his employees, where the later was disciplined for disabling the code driving the malicious activity due to not wanting “to test [the Ontario Securities Commission] OSC” with the malpractice.
The OSC is a regulatory body that combats insider trading and other financial crimes in Canada. The OSC had visited the company a few days prior to the above incident. The employee who was able to disable the code, did so in anticipation of an upcoming visit, according to the leaked material.
However, Cole didn’t seem to care as he noted that the employee didn’t consider the “massive change” in people’s perception of the exchange’s liquidity as a result of stopping wash-trading, and asked the employee to “Turn it back on.”
An excerpt from the report further reads:
“He said he didn’t approve, but that he did it because Cole asked him to. […] The decision to continue wash trading was final by Cole.”
While these documents surfaced just recently, Coinsquare has been under the public radar for a long time. Multiple Reddit users have previously pointed out that the exchange’s volume looks fishy pointing out that the platform’s trading volumes spike at odd hours.
As of now, there has been no response from the Coinsquare team.