Earlier today, South Korean law enforcement searched the offices of major local crypto exchange Coinbit and seized the firm.
Local news outlet Seoul Newspaper reported on August 26 that Coinbit was confiscated by the authorities over alleged fraud and faking over 99% of the trading volume through wash trading—an ongoing issue for the cryptocurrency industry.
South Korean law enforcement estimates that Coinbit raked in at least 100 billion won (over $84 million) through its alleged unfair practices. The exchange’s actions are believed to have negatively affected its 252,000 monthly active users.
The exchange’s accounting records are also unclear, so further embezzlement accusations may be raised in the future, the report said. More precisely, the firm only released financial statements that were not externally audited and in April it received a rejection of opinion from an accounting firm.
An accountant and accounting consultant told Seoul Newspaper: “The fact that the rejection of opinions on external audits was filed means that the […] company’s accounting is unreliable.”
This instance could remind Modern Consensus readers of BitForex—another South Korean exchange that inflated its trading volumes through wash trading in August 2018.
The little-known exchange at the time dominated Tether (USDT) and Bitcoin trading volumes, and was responsible for nearly $4.3 billion worth of USDT trades in 24 hours. After Modern Consensus pointed out the absurdity of the data, BitForex attempted to bribe us into removing the critical article.
Fake volumes reportedly common in crypto
Fake volumes among cryptocurrency exchanges are nothing new. In fact, a report released by Bitwise Asset Management in March 2019 stated that as much as 95% of Bitcoin trades are “fake and/or non-economic in nature.”
The report in question was written by Bitwise for the United States Securities and Exchange Commission in an unsuccessful attempt to gain regulatory approval for its Bitcoin exchange traded fund. It also claimed:
“The real market for Bitcoin is significantly smaller, more orderly and more regulated than commonly understood.”
In a bid to tackle fake volume reporting in the wake of that report, cryptocurrency market data tracking website CoinMarketCap rolled out new reporting requirements for crypto exchanges in May 2019. At the time, the firm also announced a collaboration with exchanges aiming to create a dialog about ways to improve transparency.