Two professors, Arash Aloosh (NEOMA) and Jiasun Li (George Mason University) have managed to unravel the mystery of an illegal, yet widespread, practice on bitcoin platforms: wash trading. This is the story of a discovery.

Roughly 33% of all platform transactions are among traders who have engaged in wash trading! These are the findings of the research work conducted by two professors, Arash Aloosh (NEOMA) and Jiasun Li (George Mason University). What is wash trading? The practice is illegal on financially regulated markets. However, these transactions take place freely on decentralised Bitcoin markets that are unregulated. The premise is as follows: the same person buys and sells their own Bitcoins. This small manipulation artificially increases the volume of exchanges and gives the impression of thriving activity. The investors, misled by this trading, think they need to keep up with constant trading to do good business.

The hackers released the transaction book on the internet, which became a database and major source of information

For several years now, the intensity of this phenomenon has raised doubts. No one has ever been able to find proof of wash trading transactions on the Bitcoin markets. The two professors nonetheless have been able to quantify them. How? By scouring the transactions registries of one of the biggest Bitcoin platforms, MtGox. “Usually, we would not have access to this information”, Arash Aloosh said. Except that in 2014, the site was hacked and the hackers released the transaction book on the internet, which became a database and major source of information for the two experts. They very soon noticed strange transactions. The first ones appeared in 2011. At this date, the same single trader identified by the ID 674 bought and sold his own Bitcoins. And what lay hidden behind the number 674? The owner of the platform Mark Karpelès.


Back in 2011, Mark Karpelès bought the newly formed platform MtGox, which then suffered various cyber-attacks in quick succession. “The pirates broke into the platform and the transactions were halted. Then the platform had to be relaunched”. Arash Aloosh said. It was during the relaunch that the owner made his first wash trading transactions. Why? To relaunch the platform, re-enter the marketplace and regain market share. Such competition is significant when we understand that there are currently more than 200 highly competitive exchange platforms. The volume of transactions is a key indicator for users when they decide where to invest.

This is how the first wash trade arose in 2011, well before becoming a common discussion among practitioners and crypto traders. It was first a practice carried out in small increments. After seeing the first attempt in 2011, the researchers came upon nearly 2887 wash trader accounts in a sample from June 2011 to May 2013.

Wash trading is possible on these deregulated platforms because there are no control systems

However, in March 2019, Mark Karpelès, considered the French wunderkind of the internet at the time, received a suspended sentenced of two and a half years in prison, a decision made by the Tokyo courts for his financial wrongdoing, for market manipulation other than wash trading (which was not identified at the time). The closure of the platform in 2014 wiped out nearly 400 million dollars.

Wash trading is possible on these deregulated platforms because there are no control systems overseeing them: no third parties, governments, central banks or supervisors. In addition, the Bitcoin transactions are carried out between users (peer to peer). Transactions are settled without an intermediary. Advantage : it is cheaper and faster than conventional systems.  With the reverse side of the coin.

 Aloosh, Arash and Li, Jiasun, Direct Evidence of Bitcoin Wash Trading (January 7, 2019)

26 April 2021
Aloosh Arash


Aloosh Arash

Professeur NEOMA BS

Arash Aloosh holds a PhD in Finance from BI Norwegian Business School and spent two years at Columbia Business School as a Visiting Scholar. He is the coordinator and instructor of Blockchain and FinTech courses at NEOMA BS. Arash's research are threefold: First, International Asset Pricing, a conventional subject covering currency risk factors, international asset management, and currency risk management. Second, CryptoCurrencies, DeFi (Decentralized Finance), and FinTech, which are of an unconventional and fast growing nature. Third, Public Health, which is highly impactful. Arash has published in Management Science (forthcoming), Lancet, and Nature among others. He has served as a cryptocurrency advisor of Consilience Ventures, and is currently a research associate at the Digital Finance Chair and an affiliate researcher at the Cardiff FinTech Research Group.