Chinese Regulator Accuses Crypto Exchanges of Fraudulent Volumes

The National Internet Finance Association of China (NIFA) warned investors that cryptocurrency exchanges located outside of the country are engaged in manipulative practices on April 2.

The People’s Bank of China (PBoC)-affiliated regulator cautioned investors that many off-shore exchanges wash trade to fake trade volume and engage in underhanded tactics to liquidate leverage traders.

NIFA cites an internal analysis of cryptocurrency markets that found more than 40 crypto assets produced trade volumes exceeding 100% of their total market capitalization, while a further 70 cryptocurrencies saw daily trade activity equal to more than 50% of their market cap.

The regulator states it has identified “massive trading volumes“ for numerous crypto assets despite many markets exhibiting a “relatively low price and small market values.”

NIFA accuses crypto exchanges both of tampering with volume data and operating bots to wash trade in a bid to create the illusion of “false prosperity.”

NIFA accuses exchanges of liquidating leverage traders

Further, NIFA accuses exchanges of intentionally shutting off their systems or staging outages to trap and liquidate leverage traders during times of peak volatility:

“After tricking investors into investing in crypto, some exchanges will manipulate the market through a range of trading techniques to take the investors’ assets.”

The regulator asserts that many of the exchanges fled off-shore after the PBoC’s crackdown on crypto exchanges in 2017. 

NIFA states that the exchanges evade authorities by frequently changing website domain names and server addresses, and by using a combination of online and offline transactions to obfuscate capital flows.

Binance takes cautious steps in China

Binance was one of the exchanges that left China in 2017. During November 2019, rumors that Binance may be seeking to open an office in China began to circulate. 

In March, Binance Academy launched a blockchain research institute in Shanghai — comprising the establishment of Binance’s first base of operations in China in over two years.

In January, Binance Charity committed to purchasing $1.4 million in medical supplies that would be donated to more than 300 hospitals and medical organizations in Chinese provinces at the epicenter of the COVID-19 pandemic — likely gaining goodwill with the central government.