Crypto Wash Trading Rises With Market Volatility

Not All Trading Volume Is Legitimate

Traders and investors always need to be wary of market manipulation, as prices and trading data may not reflect what they appear at a glance.

One such manipulation is wash trading, or the practice where an entity simultaneously buys and sells the same financial instrument or asset to create false trading volume and misleading market activity.

Because the buyer and seller are the same, no genuine transfer of beneficial ownership or economic risk occurs. Still, it falsely inflates volume metrics, making an asset or exchange appear far more liquid and popular than it actually is.

In the U.S., wash trading has long been prohibited in regulated securities and commodities markets under the Securities Exchange Act and Commodity Exchange Act.

One reason for the practice ban is that it can artificially push prices up or down to trigger market momentum, making it a perfect “Pump-and-Dump” tool. It also creates an illusion of high market interest, drawing in unsuspecting buyers.

The issue has been especially present in cryptocurrency exchanges, especially on smaller or newly established platforms seeking to expand their user base and operating with minimal regulatory oversight.

Wash trading is not unique to them, and has also been documented in emerging market equities, over-the-counter FX markets, and even regulated venues under relaxed supervision, such as small-cap stocks in the U.S. before regulatory crackdowns.

The practise of wash trading in crypto markets has been recently analyzed in a study by researchers at the Czech Academy of Sciences and Charles University in Czechia. They found that for cryptos, market volatility and public sentiment are robustly associated with wash trading.

They published their findings in International Review of Financial Analysis¹, under the title “Determinants of wash trading in major cryptoexchanges”.

Wash Trading And Crypto

Concentrated Manipulation

Researchers traced the origins of crypto wash trading back to June 26, 2011, and provided direct evidence showing that although fabricated transactions represented only 2% of trades in general, they may have accounted for up to 60% of the daily volume between June 2011 and May 2013.

Overall, the activity between regulated and unregulated exchanges can be extremely different regarding wash trading, with wash trades representing over 70% of the total trading volume across all unregulated exchanges and the situation even worse with some specific exchanges.

“For a group of suspicious centralized exchanges, 96%–98% of the reported trading volume is highly questionable”

A key reason for the prevalence of wash trading in cryptocurrencies is the lack of centralized oversight, both a positive feature of crypto and a source of problems.

This also could become a problem for the broader financial market, as Bitcoin and other cryptos are now becoming mainstream assets (BTC ).

“With the U.S. Securities and Exchange Commission (SEC) approving the first Bitcoin and Ethereum (ETH ) ETFs in early 2024, cryptocurrencies are becoming more interconnected with traditional financial markets. This connection increases the risk of crypto wash trading affecting the global financial system and impacting both institutional and individual investors.

Why Wash Trading Can Be Attractive

There are several reasons why wash trading happens, depending on market participant type.

For crypto exchanges, it can be to attract more users and improve their rankings on exchange comparison platforms such as www.coinmarketcap.com. However, while wash trading increases the popularity of exchanges in the short term, it has considerable negative long-term reputational trade-offs.

For market makers, it can create the illusion of liquidity, making an asset appear more active and reducing the perceived risk of illiquidity.

For individual cryptocurrency projects, wash trading can be used to inflate the perceived demand for a token, manipulating its price for individual financial gain, and attracting more investors or venture capital.

For individual cryptocurrency investors, this can be done to exploit the benefits offered by exchanges, such as rewards for achieving certain trading thresholds or high trading volumes.

Measuring Wash Trading

First, the researchers measured the volume of rounded and unrounded trades. A trade is considered ‘rounded’ if its size is a multiple of 100 base units or if the size equals the base unit.

This metric is used because genuine traders tend to favor round execution prices and trade sizes such as multiples of 10. In contrast, wash traders may intentionally use random or irregular sizes to avoid the risk of detection.

Another measurement used was Benford’s law-based metric. It stipulates that in natural datasets, smaller digits should appear more frequently in the leading position than larger ones.

Other methods assessing the quality of entire datasets or blockchain data, like using the fat-tailed nature of trade size distributions or a sophisticated volume-matching algorithm, could also be used.

The researchers found that Ethereum presents the highest levels of wash trading, followed by XRP and Bitcoin, with Litecoin (LTC ) showing the lowest levels.

Ethereum’s peaks in wash trading align with major price surges, consistent with attempts to inflate wash trading volume and enhance perceived liquidity. Interestingly, this was not a shared pattern with Litecoin, as greater uncertainty, as measured by the VIX, is associated with reduced wash trading in LTC.

Source: International Review of Financial Analysis

Regulations Are Not Enough

So far, the persistence of statistically and economically significant wash trading across large and reputable exchanges in the researchers’ results illustrates the limited deterrent effect of regulatory discourse alone, especially in jurisdictions lacking binding enforcement mechanisms or supervisory capacity.

For now, it seems that wash trading in crypto is not going to be a solved problem any time soon.

At the same time, it should be noted that the study dataset stopped in 2022, before major enforcement regimes such as the EU’s MiCAR and increased SEC scrutiny were introduced. So further analysis is required to give a more up-to-date picture.

Investors Takeaways

The first important information from this study for crypto investors is that headline volume does not necessarily represent executable liquidity. Trading coming from wash trading is not “real” and will not be useful as exit liquidity when a real investor is looking to cash out of a given crypto trade.

Volume data are especially contaminated by wash trading during periods of high volatility.

Another important piece of information is that wash trading is highly concentrated in unregulated exchanges, with the less reputable ones more willing to look the other way, up to some of these exchanges’ volume almost exclusively stemming from wash trading.

So overall, regulation, quality of the crypto exchange used, and more surveillance over suspicious trading activity are all important for crypto traders and investors potentially misled by wash trading. Only with these elements taken into account can digital-asset valuation and risk assessment be performed accurately.

Investing In Cryptocurrencies Trading

As exchanges and regulators devote more resources to identifying artificial trading activity, the investment opportunity may lie less in any particular cryptocurrency and more in the infrastructure used to police increasingly complex financial markets.

Nasdaq, Inc.

Nasdaq has been, since its inception in 1971, focused on new technology, distinguishing it from more generalist stock exchanges like the NYSE. This has made it the perfect marketplace where technology companies in sectors like telecom, semiconductors, computing, AI, and even biotech can perform their IPOs.

In 2025, more than half of all US-domiciled companies are listed on Nasdaq, with a growing presence abroad thanks to its acquisitions of the now-rebranded Nasdaq Nordic and Baltic markets, making it the #1 in IPO proceeds raised in Europe. Some older companies are also moving their listing to Nasdaq from other exchanges, like Walmart (WMT ) recently did in December 2025.

Source: Nasdaq

Thanks to key acquisitions like Verafin and Adenza, Nasdaq embeds its tech directly into institutional workflows. This includes AI-powered fraud detection and anti-money laundering (AML) compliance solutions (Verafin) and platforms supporting end-to-end trading, risk management (Calypso), and regulatory reporting (AxiomSL), as well as its trade Surveillance and market abuse software SMARTS, trusted by 190+ banks and regulators and 50+ exchanges.

Source: Nasdaq

This makes Nasdaq a perfect company to invest in improved controls over illegal activities like wash trading, especially as exchanges, regulators, and financial institutions would rather rely on Nasdaq as a trusted partner to identify this risk.

Besides regulatory and fraud detection, Nasdaq is today a company built around the premise that “Data is the New Fuel“, with revenues having grown at a 13% CAGR from 2020 to 2025, and free cash flow growing at a 17% CAGR.

Source: Nasdaq

Feeding this growth is the global reputation of the company, with among its clients 10,000+ corporate customers, 5,000+ institutional investors, 3,800+ financial institutions, and 135+ market regulators, with around 460 clients generating >$1M in revenues yearly.

Overall, Nasdaq is a stock for investors to get exposure to the “plumbing” of the financial systems, as well as key surveillance and regulatory tools & data.

Latest Nasdaq, Inc. (NDAQ) Stock News and Developments

Study Referenced

^{1. Jan Sila et al. Determinants of wash trading in major cryptoexchanges. International Review of Financial Analysis. September 2026. Article: 105283. Volume 117. 10.1016/j.irfa.2026.105283}