NBERWORKINGPAPERSERIESWASHTRADINGinWilliamCongXiLiTangangYangWorkingPaper30783http//papers/w30783NATIONALBUREAUOFECONOMICRESEARCHCambridgeMA8December22theviewsoftheNationalBureauofEconomicResearch.nsubjecttothereviewbytheNBERBoardofDirectorsthataccompaniesofficialNBERpublications.ortsectionscredit,including?notice,isgiventothesource.CryptoWashTradingLinWilliamCong,XiLi,KeTang,andYangYangNBERWorkingPaperNo.30783December22JELNoG,G23,G29STRACTnsonunregulatedexchangesrevealrampantmanipulationsunlikelygecharacteristics(e.g.,ageanduserbase),marketconditions,andregulation.LinWilliamCongKeTangSCJohnsonCollegeofBusinessuaUniversityCornellUniversityketang@Ithaca,NY14853andNBERYangYangwill.cong@aUniversityingXiLickRdNewcastleuponTyneNE14SEbbhgchina@unitedkingdomxi.li@newcastle.ac.ukAOnlineappendicesisavailableat/site/linwilliamcong/CWTOA.pdf1ndtheways(Rodgers(Forbes),2019;Vigna(WSJ),2019;BTI,2019).Oneformofsuchmarketvityinthemarketplacewhichisknowntodistortgscouldrfoundat/ConsumerProtection/EducationCenter/CFTCGlossary/glossary_wxyz.html2encyed3nthedollars(USD)—Bitcoin(BTC),Ethereum(ETH),Litecoin(LTC),andRipple(XRP).WeWegeveof/apps_and_licensing/virtual_currency_businesses/regulated_entities.(Lastaccessed:4eetsandoverTrillionUSDinderivativesmarketsinthefirst5neadYermackorng6erplawasseeninMaoLiandFuandPrandletalforfrauddetectionisalso7ndonfhsesoffourmajorcryptocurrencies,Bitcoin(BTC),Ether(ETH),Ripple(XRP),andLitecoinptalinthe8heresultsoffourselectedcryptocurrencypairsieBTCETHsrythenfoonNovemberandCoinMarketCaprankingisfromproprietarydatafrom/.ndesmendmentto(www.finma.ch/en/authorisation/fintech/).tyof9(AML/CTF)supervision.Inoursample,R2,R3,andUT1(Binance)haveregisteredwithth[InsertTable1]esngesdciesinading(BTC/USD,ETH/USD,LTC/USD,andXRP/USD).17Specifically,weexaminetheunregulatedexchangeUT7,U1,U6,andU9.XRP/USDdataisnotavailableinregulatedexchangeR3andnenInsertFigure]X2=x(2)[InsertTable2]U10failinBTCandXRPata1%confidencelevel,respectively;U2andU3failata5%tasdcanlzesInsertFigure]peaksatmultiplesof5000baseunitsintherangeof0-10BTC(e.g.,0.5BTC,1BTC,1.5BTC,2BTC,etc.).SimilarpatternsalsoappearindistributionsofETH,LTC,andXRP.teTCAppendixB,e.g.,U5,U7,andU15inBTCtrades;U3,U7,U11,andU15inETHtrades).chs/Vns/Vndedtradesisonlyinthe[InsertFigure3andTable3]thanis9.1%intradesizeofmultiplesof100units(e.g.,0.01BTC,0.02BTC,and0.03BTC)atTradeclusteringngeffectsatmultiplesofcantttndelyhealDistributionfollowsthefunction: lssetedityoftailexponentslieintheParetoLvyregimeal[InsertTable4andFigure4]eintraditionalmarkets.Besides,tailexponentsforUT7,UT8,andUT10areoutsidethesForinstance,inPanelR2ofFigure4,empiricaldatapointsfallaroundthefittedlinespowerlawinallfourlistedcryptocurrencies.Ingeneral,theOLSlinefitsequallyinthehtentwithTheonesroedserplacesofthelastnonzerodigitForinstanceBTChasahigherlevelofroundnessthan2.123BTC;100ETHhasahigherlevelofroundnessthan1234ETH.28e[InsertTable5]sass[InsertTable6]ourergtonesdsdndAppendixFshowninFigure5.30Inaddition,wecomparethetradesizedistributionofInsertFigure][InsertTable7]eseingdguchastraderalelyWithoutmakingcausalclaims,wesimplyaimtoaddtheinsightstothefirstcanonofiris InsertFigure]apSucheumeiInsertFigure][InsertTable8]reticalmodelinieslsvisitingawebpagewhichisaclosesl[InsertTable9]sinofyomretegcensecordseeAlameda.(2019).InvestigationintotheLegitimacyofReportedCryptocurrencyExchangeVolume.Retrievedfrom/volume-report-paper.pdfAlexanderG.J.,andPeterson,M.A.(2007).Ananalysisoftrade-sizeclusteringanditsrelationtostealthromnanddisappearswithcustomersfundsductQualityFakeTradingonCryptoesWorkingPaperapGwilym,O.,andMeng,L.(2010).SizeclusteringintheFTSE100indexfuturesmarket.JournalofFuturestionWorkingPaper/sites/billybambrough/2020/03/31/bitcoin-and-crypto-world-rocked-by-massive-400-million-binance-bid-for-coinmarketcap-report/#7e1a2f97247ftivendCloudKGlobalrtpsmediumcomblockchaincapitalefrom/sites/jasonbrett/2019/12/19/congress-considers-federal-crypto-regulators-in-new-cryptocurrency-act-of-2020/https://www.bti.live/reports-april2019/onshChoiSHandJarrowBTestingtheLocalMartingaleTheoryofBubblesusingCryptocurrencies,Workingpaper.Clarkson,P.,Nekrasov,A.,Simon,A.,andTutticci,I.(2015).Targetpriceforecasts:Fundamentalandnon-/2019/05/01/happy-6th-birthday-data-alliance-block-explorers-and-more//2019/11/11/coinmarketcap-launches-new-liquidity-metric/Cong,L.W.,Li,Y.,andWang,N.(2020).Tokenomics:Dynamicadoptionandvaluation.ReviewofFinancialeMacMillan,Forthcoming.Cong,L.W.,Landsman,W.R.,MaydewE.L.,andRabetti,D.(2022).Tax-LossHarvestingwithCong,L.W.,Miao,Q.,Tang,K.,andXie,D.(2019).SurvivalScale:MarketplaceLendingandAsymmetricCong,L.W.,Miao,Q.,Tang,K.,andXie,D.(2019).SurvivalScale:MarketplaceLendingandAsymmetricyinFama,E.F.,andMacBeth,J.D.(1973).Risk,return,andequilibrium:Empiricaltests.Journalofpoliticaldfrom.uk/publication/research/cryptoassets-ownership-attitudes-uk-consumer-survey-research-report.pdfsthEd).nancedManagementonsinGabaixXGopikrishnanPPlerouVandStanley,H.E.(2003b).Understandingthecubicandhalf-cubicGabaix,X.,Gopikrishnan,P.,Plerou,V.,&Stanley,H.E.(2006).InstitutionalinvestorsandstockmarketGandal,N.,Hamrick,J.,Moore,T.,andOberman,T.(2018).PricemanipulationintheBitcoinecosystem.lCoinOfferingsasaCommitmenttoCompetitionGomber,P.,Gsell,M.,Pujol,G.,andWranik,A.(2009).RegulationandTechnologyinEquityTrading–TheryFrameworksinSecuritiesTradinginEuropericaHenryCSHuynhKPandNichollsGBitcoinAwarenessandUsageinCanadaAnUpdate.ThegHelms,K.(2020).$8.8TrillionTradedinCryptocurrencySpotandFuturesMarketsinQ1:Reports.Retrievedfromhttps://news./trillion-traded-cryptocurrency-spot-futures-markets/Hernando-Veciana,á.,andTr?ge,M.(2020).CheapTalkandStrategicRoundinginLIBORSubmissions.TheAlternativeFinance,33.Hill,T.P.(1995).Base-invarianceimpliesBenford’slaw.ProceedingsoftheAmericanMathematicalSociety,manyImisiker,S.,andTas,B.K.O.(2018).Washtradesasastockmarketmanipulationtool.JournalofbehavioralesbergFJohnKandSalehFThepublicblockchainecosystemanempiricalanalysisWorkingpaper.liIPOKuo,W.Y.,Lin,T.C.,andZhao,J.(2015).Cognitivelimitationandinvestmentperformance:EvidencefromesLePennec,G.,Fiedler,I.,andAnte,L.(2021).Washtradingatcryptocurrencyexchanges.FinanceResearchPaperexesdigitsTheAmericanStatisticianionsmath/0408057.DualLiu,Y.,andTvyvinsky,A.(2018).Risksandreturnsofcryptocurrency.ReviewofFinancialStudies,PaperceesMoore,T.,andChristin,N.(2013).Bewarethemiddleman:EmpiricalanalysisofBitcoin-exchangerisk.PapertyMooreTChristinNandSzurdiJRevisitingtherisksofbitcoincurrencyexchangeclosure.ACMTransactionsonInternetTechnologyTOIT18.sNewey,W.K.,andWest,K.D.(1986).Asimple,positivesemi-definite,heteroskedasticityandNirei,M.,Stachurski,J.,andWatanabe,T.(2020).TradeClusteringandPowerLawsinFinancialMarkets./essays/transparent-volume/OHaraMYaoCandYe,M.(2014).What'snotthere:Oddlotsandmarketdata.TheJournalofFinance,OhnishiTTakayasuHItoTHashimotoYWatanabeTandTakayasuM(2008).Dynamicsofquotem/cobinhood-announces-shutdown-claiming-it-will-audit-user-accountsCostofApplyingforaNewYorkBitLicenseCoindeskAugRetrievedfrom/real-cost-applying-new-york-bitlicenselStatisticsPlerou,V.,Gopikrishnan,P.,Amaral,L.A.N.,Gabaix,X.,andStanley,H.E.(2000).EconomicfluctuationsSKakAninvestigationofpowerlawprobabilityhowsriasinnumberprocessingEvidencefromanalystsForthcoming.om/imo/media/doc/Roubini%20Testimony%2010-11-18.pdfanagementperTabb,L.,Iati,R.,andSussman,A.(2009).USequityhighfrequencytrading:Strategies,sizingandmarketstructure.TABBGroupreport(1),2.mrecomintroducingcryptocomparesexchangebenchmarkingmethodologyVandewalle,N.,Ausloos,M.,andBoveroux,P.(1997).DetrendedfluctuationanalysisoftheforeignexchangeVerousis,T.,andapGwilym,O.(2013).TradesizeclusteringandthecostoftradingattheLondonStockingandQuantifyingWashTradingonDecentralizedgVigna,Paul.(2019).MostBitcoinTradingFakedbyUnregulatedExchanges,StudyFinds.TheWallStreetTheWallStreetJournal,Oct2from/business/banking-finance/article/2132009/china-stamp-out-cryptocurrency-trading-completely-banfrom/crypto-exchange-fcoin-insolvent-after-revealing-up-to-130m-bitcoin-shortfallTHLTCRankinVisitsallWebsitesR1yearR2yearR3yearUT12year≤A<5yearUT2yearUT3yearUT4yearUT5yearUT6UT7yearUT8yearUT9yearUT10yearyear7805year997N/A2year≤A<5year3464year944UyearAyear52741year624year8482year≤A<5year52year27566year305year2612yearAyear16668year525year2013ExchangeBTC/USDETH/USDLTC/USDXRP/USDCodeX2p-valueX2p-valueX2p-valueX2p-valueNANAR1R2R3UT1UT2UT3UT4UT5UT6UT723NANAUT8UT9UT10NANANANA*9***NANANANA*NANAeatXBTC/USDETH/USDLTC/USDXRP/USD60***09***03***63***32***NANAR1R2R391***89***25***12***35***UT188***79***UT265***76***UT300***10***76***UT42UT528***04***UT6UT788***0.057***NANA32***UT882***47***UT984***01***UT10NANANANA30***29***73***NANANANA58***-0.3410.035***2NANA59*****11***34***0.061***94***83***43*****BTC/USDETH/USDLTC/USDXRP/USD48***06***31***66***37***NANAR1R2R303***95***66***71***90***10***UT154***1***93***83***UT296***0.102***37***UT321***36***97***UT439***0.033***UT557***7***98***59***UT6UT785***0.171***NANA47***UT839***77***UT963***0.159***39***96***UT10NANANANA*NANANANA0.246****0NANANANANANA69***62***NANA50***0.098***54***55***19***0.080***stSquareOLSandBTC/USDLSHillLévyETH/USDLSHillLévyLTC/USDLSHillLévyXRP/USDLSHillLévyYYYYYYNANAYYNAR1R2R3YYYUT.6691.209Y1.795YYYUT2YYYYUT3YYYYUT4NNNNUT5YYYYUT6NNNNUT7NYNANANAYUT8NYYYUT9YYYYUT10YYNYNNNANANANANANANNNNNNNNNNNNNNNYYNANANANANANANNNNNNNNNNNANANANNNNNNNNNNYYNYYYYNNYNYYYYNYNNBTC/USDETH/USDLTC/USDXRP/USDX2p-valueX2p-valueX2p-valueX2p-valueUT1UT2UT392.104***0.000UT417.224***0.008UT5115.48***0.0009.5**UT6UT7182.435***0.000NANAUT85UT9UT101461.8***0.0000.005NANANANA***0.000U828.828***0.0006***U1670.819***0.000U1668.236***0.000U1639.493***0.000NANANANAU740.835***0.000NANAU1719.65***0.000U439.322***0.000U18.605***0.00508***0.000U1310.242***0.000U1546.727***0.000U535.379***0.000dwhereln(VRoundit)andln(VUnroundedit)arethelogarithmsofroundtradevolumeandndeUT1UT2UT3UT4UT5UT6UT7UT8UT9UT10NANAedrtohetimevariablethatequals1iftheexchangeisunregulatedTier-1exchange,0otherwise.ThenumberofuniquevisitorsreferstothenumberofdistinctvisitorsampleperiodderivedfromSimilarWebAugusttoOctoberreportsAllmodelsareestimatedwithrandomeffectsbasedontheHausmantest.CurrencyfixedeffectsareincludedinModel2,4,6,8,10,and12ofPanelA,andModel2and4ofPanelB.t-statisticsarereportedintheatisticalsignificancelevelsatandrespectively(5)(6)(7)03***02***24***23***24***23***-0.001***-0.002***-0.002***CMCranktTierExchange00***00***0.036**65***(2.16)CurrencyFixedEffectsNYNYNYNYNYNYOverallR21.1%0.2%(1)(2)(3)(4)47***41***CMCrankt05***TierExchange05***NYNYOverallR2iestriesnlogWashTradeVolumet(1)(2)(3)(4)(5)(6)(7)CMCVolatilityt-1CMCVolatilityt-2.297**-2.070**-3.547***etOverallR2slawR2BTC/USDETH/USDLTC/USDXRP/USDUT6ETH/USDBTCETH/USDLTC/USDXRP/USDUBTC/USDETH/USDLTC/USDXRP/USDBTC/USDETH/USDXRP/USDBTC/USDETH/USDLTC/USDXRPLTC/USDrirBTC,0-10BTC,0-10ETH,0-100ETH,0-100LTC,0-1000LTC,0-10000XRP,and0-100000XPR.InR2UT6relributionsinregulatedexchangesTierunregulatedandTierR2UT6testwereportfourcryptocurrencypairsBTC,ETH,LTC,andXRP.ThetestresultsaregroupedbyntLSorHillislocatedoutsidetheParetoLvyrangerererwithithsithahengutreesinaderenewnormbutarelimitedbyheavyregulation.InitialDEXOfferings(IDOs,inwhichDEXstandsfordecentralizednrslytswAuthorities(e.g.,Bankof