Introduction

A WSJ investigation reveals that Binance CEO Changpeng Zhao was aware of wash trading on launching and “routing” the American branch.

According to a report from The Wall Street Journal, in the first hour of Binance launching its US exchange, BinanceUS, around $70,000 worth of Bitcoin (BTC) was exchanged.

The media had access to an insider where CEO Changpeng Zhao allegedly admitted that not all volume was from outside traders.

“It was myself, I think.”

Changpeng Zhao, CEO of Binance

In addition, the Wall Street Journal report claims that global Binance was traded on the exchange by 46% of its total amount.

What is Laundry Trading?

This raises a larger question about realistic trading volumes vs. shuffling coin promoters’ assets known as wash trading.

Wash trading is a deceiving practice in the financial markets in which the entity, usually a dealer or a group of merchants, artificially inflates trading frequent buying and selling volumes of an asset to create an illusion of higher market activity.

Wash trading aims to manipulate market feelings, attract more traders, and potentially increase the asset’s price. This practice is illegal in organized financial markets as it distorts supply and demand dynamics and misleads investors.

In the cryptocurrency market, traders may participate in wash trading by executing buy and sell orders for the same digital asset at the same time and price, generating a large amount of trading activity although there is no real change in the property or value of the asset.

The SEC Allegedly Accused Binance of Wash Trading

According to the WSJ, the SEC claimed that 70% of the trading amount on BinanceUS has been amplified by Sigma Chain accounts. Sigma Chain, as previously reported by WSJ, is a Swiss trading company allegedly controlled by Zhao. Moreover, the SEC claims that CZ knew of directing such operations.

In response to the Wall Street Journal’s revelations, a spokesperson for the US arm suggested that BinanceUS and CZ never got involved in wash trading.

This claim carries a lot of weight, especially given that it adds up to other cases, such as SEC and CFTC lawsuits. Currently, Binance is seeking to delist the CFTC one.

Moreover, Binance is facing a massive wave of layoffs. Changpeng Zhao reportedly submitted a voluntary resignation option for employees amid uncertain reasons for the decision. Reports indicate that employees across various departments are given the option to choose voluntary termination.

Other Cases with Wash Trading

This is not the first time wash trading accusations arose. Coinbase, a major US cryptocurrency exchange, has faced similar legal issues with CFTC.

The organizer claimed that the trading working platform engaged in wash trading for over six weeks in 2016. The dispute was later settled in 2021 with CFTC ordering Coinbase to pay $6.5 million in fines.