Outsourced Cryptocurrency Wash Trading

Abstract

I show that outsourced cryptocurrency wash trading is shaped by the objective assigned to the outside firm. When hired to manufacture volume, wash traders buy and sell nearly equal amounts, repeatedly turning over the same inventory. When also tasked with selling issuer holdings, trading becomes markedly more one-sided, with sales exceeding purchases. Using documented enforcement cases and transaction records, I trace these differences in net selling, two-way trading, and inventory replenishment across controlled wallets. The results show that similar reported trading volume can mask fundamentally different economic activity as contractual objectives shape whether manipulation recycles inventory or liquidates issuer holdings.

arXiv comment21 pages main text, 4 figures, 1 table