Bithumb Promotional Offer Abused By Generating $250mln Fake Volume
Bithumb, South Korea’s largest cryptocurrency exchange, has recently announced a promotional offer which pays back up to 120% of trading fees received from its clients in the form of airdrops on a “first come first served basis”.
The promotional offer is abused by a trader to generate as much as $90,000 per day, according to a study conducted by Alex Krüger, a cryptocurrency analyst and economist.
The economist has alleged that a trader, whose identity is unknown, is generating $250 million worth “fake volume” every day. Notably, the “wash trading” process commences exactly at 11 am Korean Standard time.
Alex Krüger has pointed out that the exchange has set a daily payback limit of 1 billion Korean won ($900,000) to prevent abuse of the system.
Presently, Bithumb charges trading fees of 0.15% on each completed trade on its platform. So, 120% of the fee works out to 0.18%, which is the payback on every trade. The alleged trader rakes up volume to net 0.03% from every trade.
By buying and selling at the same time, a trader will be able to generate 0.36% from every round trade. Krüger has explained that “wash trading” can be done by “entering two opposite limit orders.” Furthermore, Krüger has pointed out that a trader can grab the entire or at least a major portion of the rebate offered through wash trading strategy explained above. In order to execute such a trade, the client of Bithumb must have at least 278 billion Korean won (~$250 million) in the trading account.
Krüger has mentioned that the trader in question has been performing the same kind of trade for the past one week, resulting in a fake volume of $250 million every 24 hours in Bithumb.
1/ There currently are USD 250 million of fake volume traded at Korean crypto exchange Bithumb, every day at 11AM Korean Time, since August/25. Tweetstorm covers the math behind it in simple terms. #washtrading illustrated.
— Alex Krüger 🇦🇷 (@Crypto_Macro) September 2, 2018
Krüger has illustrated the manner in which the alleged trader is capitalizing on the promotional offer. Krüger told “notice how 31K bitcoin (KRW 252 billion) are traded at exactly 11 AM. The remainder KRW 26 billion are traded in other coins.”
Krüger further stated that Bithumb is not gaining anything from this expensive campaign. After deducting trading fees, by abusing the system, wash traders may generate $150,000 in daily earnings. This means the trader could earn up to $4.5 million during the not-so well-thought out plan of the cryptocurrency exchange.
It can be remembered that Crypto Exchange Ranks (CER), a research group, had discovered trading volume manipulation by several cryptocurrency exchanges. Some of the exchanges involved in trading volume manipulation, per the report of CER, are BitForex, FCoin and CoinEx.