Some Binance.US Crypto Trading Was a Mirage, the SEC Alleges
When crypto company Binance launched its U.S. exchange in 2019, almost $70,000 of bitcoin changed hands in the first hour. But the demand didn’t come from external traders.
“That was ourself, I think," Binance Chief Executive Changpeng Zhao said in an internal message viewed by The Wall Street Journal. Just how much crypto trading volume is due to actual trades versus exchanges and coin promoters shuffling assets among themselves is an issue for regulators and investors trying to gauge the depth of these markets. The issue revolves around what is known as “wash trading." This practice involves someone trading an asset with themselves or an affiliate.
The result is that there isn’t economic substance to the trades, which can inflate both prices and trading volume. The U.S. outlawed wash trading for stocks and bonds nearly a century ago.
Now, concerns about wash trading in crypto markets have mounted, especially since trading volumes have become a crucial marketing point for crypto exchanges to draw customers into an opaque market. The Securities and Exchange Commission sued Zhao and Binance.US last month, alleging that a firm he controlled inflated trading volumes on the U.S. exchange.
The agency alleges Binance.US inflated trading volumes by using dozens of user accounts held by Sigma Chain, a Swiss trading company controlled by Zhao and whose existence was earlier reported on by the Journal. The SEC didn’t specify who executed those trades. The regulator said several Binance employees conducted Sigma Chain’s operations under Zhao’s direction.
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