The platform buys and sells Bitcoin by itself, and the transaction volume is huge

Source: China Securities Network

The price of Bitcoin surged to 6,900 yuan on the 28th, with a daily increase of more than 4%. If a 5x leverage is used, investors can earn up to 20% a day. Since the beginning of this year, the price of Bitcoin has soared, with an increase of more than 194%, surpassing star investment products such as real estate and rebar, and successfully attracted many "mothers" and "youngsters" to enter the market. With the rapid expansion, the daily transaction volume of major domestic Bitcoin trading platforms has exceeded 30 billion yuan.

In addition to the popularity of blockchain technology and the risk aversion caused by the "black swan event", there is a hidden "pusher" behind the hot market - the trading platform's volume manipulation. Senior Bitcoin investors and industry insiders revealed that Bitcoin trading platforms are "ferocious" in volume manipulation. Writing a program and hanging it overnight can increase the transaction volume from 100,000 coins to 2 million coins. Volume manipulation can increase trading activity, push up prices, and ultimately increase the market share and revenue of trading platforms, and it is almost zero cost and zero risk. However, the market prosperity created by manipulation is fraught with risks. Once the market situation changes, ordinary investors will become "leeks."

An open secret

Bitcoin investor Wu Qing (pseudonym) found that his recent transactions on a small Bitcoin platform were somewhat strange. His bid was obviously higher than the final transaction price, but he could not grab the Bitcoins listed. "On Bitcoin trading platforms that use matching algorithms to facilitate transactions, the highest bidder has priority, and it is theoretically impossible to not be able to grab the coins even if you pay a high price." Wu Qing said that after consulting senior investors online, he realized that he had run into a "washing program." This program sells and buys by itself, and the Bitcoins listed can only be bought by the program itself, so Wu Qing naturally cannot grab them.

Several senior Bitcoin investors told China Securities Journal reporters that it is an open secret in the industry that Bitcoin trading platforms inflate volume. A technical backbone of a large Bitcoin trading platform said that the cost of inflate volume on a trading platform is very low. You only need to open an account, "write" a certain amount of Bitcoin, and hang a program to increase the trading volume. According to media reports, people from several major domestic Bitcoin trading platforms have said that inflate volume is common in the industry. Through inflate volume, it is possible to increase the trading volume 20 times overnight. The heads of several domestic trading platforms have accused other platforms of inflate volume on different occasions, but when China Securities Journal reporters contacted the heads of these platforms, they all denied that their platforms inflate volume.

Due to the hot market of Bitcoin this year, although some investors have noticed the practice of inflating the volume of transactions on the platform, the resistance is not serious. The head of the media department of a large Bitcoin trading platform said that at present, investors can only complain about the inflated volume in online forums, but no further action has been taken.

Three modes of volume

As blockchain technology heats up, Bitcoin transactions are becoming more active. Bitcoin trading platforms are actually nodes on the blockchain. Bitcoin transactions do not involve actual Bitcoin transfers before settlement, and are actually irrelevant to whether the blockchain is secure. Therefore, blockchain, a highly secure technology, cannot prevent trading platforms from inflating volumes.

Trading volume is the primary consideration for Bitcoin investors, especially novice investors, when choosing a trading platform. Li Zhi (pseudonym), a senior Bitcoin investor, told China Securities Journal that there are three ways for Bitcoin trading platforms to increase trading volume: one is to directly falsely report trading volume.

The major domestic trading platforms all publish their 24-hour trading volumes, so they can falsely report a good-looking trading volume. The second is to set up an account and install a program to conduct high-frequency arbitrage. Wu Qing ran into this type of platform. Bitcoin trading platforms allow self-trading, so it is not technically difficult to install a program. The trading platform only needs to set the account to only accept counterparties with a certain blockchain address, which is actually the account itself. This kind of arbitrage forms a transaction on the surface, but in reality no Bitcoin transfer occurs. The trading platform does not need to bear the risk of price fluctuations while increasing the trading volume. The third is to set up two accounts and use a program to achieve high-frequency arbitrage between the two accounts.

Li Zhi said that the first method is too simple and crude, and it is easy to be exposed. If the actual trading activity is too far from the published figures, investors can easily see the flaws. The third method is the least likely to be exposed. The trading platform occasionally allows investors to intervene in the arbitrage between two accounts that wash the volume, which will make the trading platform bear certain price fluctuation risks.

The head of the media department of a large domestic Bitcoin trading platform said that the second mode is currently the main method used by domestic trading platforms to increase trading volume. Although experienced investors like Wu Qing can find flaws, many senior investors said that unless all transaction records are obtained from the trading platform, it is almost impossible for investors to obtain solid evidence of increasing trading volume.

Beware of moral hazard

Due to the lack of relevant regulatory laws and regulations, trading platforms can inflate trading volume without any scruples, and the benefits brought are real.

People related to OKcoin and Huobi.com said that the trading platform currently has two main sources of profit. The first is the withdrawal fee. OK-coin charges a withdrawal fee of 0.3 to 0.5 RMB according to the user level. After the investor completes the transaction, he needs to pay a fee to the trading platform to convert the Bitcoin in his account into RMB. The withdrawal fee is heavily dependent on the trading activity. The more investors there are, the more Bitcoin is traded, and the more withdrawals there are. This fee is the main source of profit for the platform. Secondly, it provides leverage to investors and charges fees. The platform lends Bitcoin to investors, and investors achieve leverage operations. This income is also directly related to the number of investors and trading activity.

Inflating the volume can push up the price of Bitcoin to a certain extent. The rising price helps to attract more investors, increase activity, and form a positive cycle. However, a professional who is proficient in the underlying technology of Bitcoin said that domestic Bitcoin trading platforms all have short-selling mechanisms, and are interconnected with overseas trading platforms to a certain extent. Experienced investors are good at moving between platforms. The result of these factors is that the possibility of any trading platform completely manipulating prices is very low, but it is indeed possible to influence prices.

Industry insiders believe that the volume manipulation on Bitcoin trading platforms exposes investors to hidden risks. First, trading volume affects price fluctuations, and investors, especially novice investors, may become "leeks." Li Zhi said: "If players who are not aware of the situation enter a trading platform that relies heavily on volume manipulation, when the tide recedes and the trading platform stops manipulation, the trading volume will drop sharply, and the price of Bitcoin will plunge. Advanced players can quickly sell their stocks through high-frequency trading, while novice players can only cry for help."

Secondly, when trading platforms are "both referees and athletes" in brushing volume, there is a great moral risk. Zhou Xueteng, senior partner of Beijing Credit Law Firm, said that traditional stock exchanges do not have the problem of brushing volume like Bitcoin trading platforms. The Securities Law prohibits exchange-related personnel from participating in transactions on the exchange. The Guiding Opinions on the Management of Investment Managers of Fund Management Companies also has corresponding avoidance requirements for fund management company personnel. Bitcoin trading platforms are on the edge of regulation, so problems are prone to occur.

Industry insiders said that although it is difficult for investors to obtain evidence of inflated trading volumes on trading platforms, if regulatory authorities intervene, they can basically determine whether inflated trading volumes exist by simply retrieving the transaction records.