A breakdown of the “three sins” of virtual currency trading platforms: false transactions, market manipulation, and money laundering for criminals

In recent years, speculation related to virtual currencies such as Bitcoin has been prevalent, and risks have accumulated rapidly. Since the People's Bank of China and seven other ministries issued an announcement in September 2017 to clean up and rectify domestic virtual currency trading platforms and ICO activities, the impact of the virtual currency bubble on my country has been effectively blocked.

Since then, some virtual currency trading platforms have continued to engage in related illegal activities by setting up servers overseas and providing trading services to domestic residents in order to evade regulatory crackdowns. Regulatory authorities are still monitoring and cracking down on such behavior. The People's Bank of China, together with the Central Cyberspace Affairs Commission and other departments, has monitored and dealt with more than 300 "overseas" virtual currency trading platforms.

However, in the face of the rapid rise in virtual currency prices, some people who are unaware of the truth are still trading on relevant virtual currency trading platforms with the dream of "getting rich overnight". People hope to gain profits from the fluctuations in virtual currency prices, but some platforms are concerned about people's principal.

A market research report obtained by the reporter summarized and analyzed the common routines of virtual currency trading platforms, and sorted out the operating tricks behind the chaos: the platform first deceived customers into entering the market through false transactions, and then forced customers to liquidate their positions by manipulating market prices and malicious downtime; some platforms even became tools for criminals to launder money.

The first sin: abnormally high trading volume creates a false sense of prosperity and attracts customers through fake transactions

In the eyes of customers, the larger the trading volume of a virtual currency trading platform, the more popular and reliable the platform is. However, they do not know that trading volume can also be faked.

Market research found that the average turnover rates of the top three virtual currency trading platforms were 13.25%, 8.33% and 6.15%, respectively, which were significantly higher than the average turnover rate of 2.37% of foreign licensed exchanges, 5.6 times, 3.52 times and 2.6 times higher, respectively, indicating that there is a major suspicion that the trading platforms are using robots to increase trading volume.

In addition, in the market survey, we randomly selected several large virtual currency trading platforms for transaction amount sample data analysis and found that their transaction characteristics violated Benford's law (which means that the probability of occurrence of numbers in naturally generated and unmodified data basically follows the same probability density distribution). The frequency of occurrence of a certain number in the transaction amount showed an abnormal tail phenomenon, indicating that these data were artificially modified and were not the result of natural transactions. This further proves that the trading platform has false transactions and data fraud.

Virtual currency trading platforms can obtain higher rankings on the Coin Market Cap website (a currency price website frequently used by investors in the virtual currency field) by inflating huge trading volumes through fake transactions, allowing virtual currencies to gain more attention, creating an illusion of a prosperous market, and causing customers to generally overestimate the value of virtual currencies, thereby attracting customers to enter the market.

The second crime: malicious downtime forced leveraged transactions to "explode" and thus manipulate the market

Market investigations have found that some virtual currency trading platforms collude with each other and plot against customers' property. One platform used the method of "unplugging the network cable" to cause the trading platform to repeatedly experience abnormal phenomena such as flashbacks, freezes, and positions cannot be displayed, affecting customers' normal order placement, withdrawal and closing of orders. The downtime generally lasts from half an hour to 2 hours. At the same time, another platform manipulates prices through robot buying and selling, forcibly lowering or raising prices during the downtime of other platforms. When customers add 10 times or even 20 times high leverage, facing huge price fluctuations, they cannot choose to stop loss or cover positions due to system downtime, and can only be forced to liquidate, and ultimately suffer heavy losses, or even lose all their money. After a period of time, the two platforms exchanged roles and repeated the same trick, with the former manipulating prices and the latter shutting down to embezzle customers' property.

The investigation found that a large virtual currency trading platform had a total of 6 system downtimes in one year, 3 of which were sudden failures, and the platform admitted that there were 2 liquidation incidents. Currently, there have been many cases where the interests of contract investors were damaged due to the inability to log in to the virtual currency platform.

The third crime: using anonymity and decentralization to launder money for criminals

The above market research analyzed the withdrawal data of virtual currency trading platforms and found that there were multiple small-amount cumulative transfers of Bitcoin and one large-amount transfer out, which are consistent with the basic characteristics of money laundering. Virtual currencies represented by Bitcoin have become accomplices of criminals in money laundering due to their anonymity and global nature, and have great social risks.

In the case of Yishidun, which made illegal profits by manipulating the futures market during the huge stock market fluctuations in 2015, after making illegal profits of more than 2 billion yuan from domestic stock index futures, Yishidun attempted to transfer funds through a Bitcoin trading platform, but the transfer failed due to the huge scale and the inability to provide complete supporting documents.

The general public should be aware of fraud in the name of blockchain technology innovation

No matter how things change, they still remain essentially the same. By analyzing the chaos of virtual currency trading platforms, it is not difficult to find that these tricks are not new. The relevant platforms took advantage of the emerging technology of blockchain and the public's interest in emerging technologies, and under the guise of high returns, they used the name of blockchain technology innovation to commit online fraud.

Experts remind that the general public should keep their eyes open, actively enhance risk prevention awareness and self-protection awareness, and not blindly follow the hype to prevent being deceived and causing economic losses. If any institution is found to be involved in such illegal financial activities, it should be reported to the relevant departments in a timely manner. If it involves illegal crimes, it should be reported to the public security organs in a timely manner.