Heading:​ Unusual A/B testing: which

trading volume manipulation to choose?

Subheading:​ Bithumb, the biggest Korean Crypto
Exchange, uses a multi-factored approach to fake its
trading volume.

Intro

Nowadays, we often hear the crypto industry referred to as the "Wild Wild West" by those in the
traditional financial and business sectors. This is in part, due to the immaturity of the blockchain
field, whos infancy results in a lack of regulations, business dealing standards and requirements
for those companies operating in the market.

As a result, it's possible for "smart people" to earn "easy money" by manipulating less educated
and easily led participants in the market. This behaviour negatively affects the prosperity of the
blockchain field as a whole since it causes serious market players, including investment banks
and institutional investors, to avoid crypto and crypto related businesses altogether, considering
them to be a ‘scam’ or a bubble just waiting to burst.
Logic suggests that all well-established crypto businesses, including the biggest exchanges and
token issuers would likely be the most interested parties in the continued development of the
crypto field. It is imperative that they take all possible measures to convince the rest world that
blockchain and cryptocurrencies are undervalued and sustainable.

But unfortunately, this is not the case...

There are entities that prefer to make fast money whatever it takes. One of them is the biggest
Korean crypto exchange - ​Bithumb​. The exchange applies various trade volume manipulation
techniques and then uses a multi-factored approach to conceal these manipulations.
Bithumb, established in 2013, is one of the oldest South Korean crypto exchanges. It provides
crypto to fiat trading for 66 coins against Korean won (KRW). Currently, it is the second largest
exchange globally with $​1.4bln​ 24-hours reported volume according to CoinMarketCap (CMC).

Let's get down to business.

Read also our ​investigation​ on two other Korean exchanges manipulating the trade
volume

Bithumb Success Overview

In September 2018, Bithumb was at the bottom of the CMC Top-10 with about $350mln of daily
volume. However, during the second week of October its 24h volume increased to over $1bln
and continued to rise right up to November 11th, peaking at about $4.4bln. Such a significant
grow eventually led Bithumb to overcome Binance and Bitmex in order to top CMC rank by
reported daily volume.
Fig 1 shows Bithumb sitting on top of the CMC rank with $4.1bln 24h trade volume on
November 9th, which is more than 10 times greater than its average daily volume during the
summer. Due to these figures, we decided to investigate the trading activity on Bithumb.

Trading Activity Analysis

We examined the exchange’s 10 most active coins: BTC, LTC, ETC, XMR, ZEC, DASH, BTG,
OMG, QTUM, and WTC. In particular, we reviewed their charts over different time frames
retrieved via API and analyzed the historical trade data from June 1st to November 22nd. We
also calculated the correlation between trade volume and price volatility and reviewed
transactions during particular periods more closely.

To begin with, we calculated the Price-Volume Correlation (PVC) by the 10 most active coins
using the methodology from our ​recent research​ and we received the following results (see fig
2).
Fig 2 shows the PVC falling since July. In September the metric entered the red territory (values
below 0.5) that we consider influenced by non-market mechanisms. The obtained results
suggest a high chance of foul play taking place on Bithumb since the lower the PVC value the
more likely trade manipulations have taken place.

So, let’s dig deeper into the charts and trade data.

BTC market analysis

While looking on the BTC daily chart it’s hard not to notice a significant rise in volume that
started on August 25th and then abruptly dropped on November 12th (see fig 3).
Fig 3 shows the BTC daily trade volume increase tenfold in September from 3.2k BTC on
average from the beginning of the summer. Such volume performance looks very strange
considering the absence of fundamental factors and the fact that we are not looking at a newbie
trans-fee mining exchange but at the largest South Korean crypto platform by trade volume.

We must also note that our analysis suggests that the trade volume has been intentionally
inflated on Bithumb starting from the end of August and continued even today. We can divide
this 3-months long “volume pump” into 3 periods with different characteristics of trading activity
specific to each of them:
● First period - from August 25th to October 7th
● Second period - from October 8th to November 11th
● Now ongoing third period started on November 12th

“​The first period​”​ of Bithumb’s volume pump is characterized by a peculiar trade volume
performance featuring an activity spike during the first ​few minutes​ of an hour (11 a.m. local
time each day) delivering​ 90-95% (!!!) of daily total volume​. Such synthetic trading activity has
formed a peculiar “comb-like” pattern on the hourly chart (see fig 4).
“​The second period​”​ is characterized by irregular trade volumes not aligning with price moves.
There are multiple volume spikes in low volatility periods and sharp price swings on much lower
volumes (see fig 5).

The pump in the “second period” lasted for over a month intensifying closer to its end as daily
trade volume gradually rose from 22k BTC (October 8th) to 87k BTC (November 11th) with a
peak of 106k BTC on November 6th. Then the flood has stopped and daily trade volume
dropped by more than 56 times to 1,538 BTC on November 12th.
BTC trading activity returned to its natural level on November 12th, since even a dramatic fall in
price and increased volatility couldn’t drive volumes to previously pumped levels (see fig 6).
On​ “​the third period​”​ of the pump starting on November 12th, BTC trade volume shows a fairly
natural performance: increasing when volatility rises and spiking while the price goes through
lows or moves sharply (fig 7).

While looking deeper into the trade data, we calculated daily Average Transaction Size (ATS)
first hand.

On fig 8 one can see BTC ATS from the beginning of the summer till November 22nd and its
notable rise which started on August 25th. The daily measure increased by 8.7 times from 0.21
BTC on average in the period preceding the pump to 1.83 BTC on average in the pump’s “first
period”.
BTC ATS in the “second period” experienced further grow beginning from October 15th with a
peak of 5.88 BTC on November 11th. Think it over: the average size of 14,823 transactions
carried out in one day on Bithumb is 5.88 BTC (about $37,600). And that was happening not
during Bitcoin dramatic fall in price, but a few days before that when it traded in a tighter range
around $6,400. Eventually, ATS dropped to 0.17 from the beginning of the “third period”.

Let’s take a closer look into BTC trades on particular days. To begin with, this is how the trading
looked like on August 8th, a day from the period preceding the pump (see fig 9).
The scatterplot of August 8th BTC transactions (fig 9) displays apparently natural trading activity
with a small number of large trades performed throughout the day.

The histogram of August 8th BTC transaction size distribution (fig 10) shows that 10,557 trades
(66.85% of the total) have the size less than 0.1 BTC, and 229 large trades over 2 BTC form
only 0.015% of the day’s total number. The ATS of the day is 0.234 BTC.
Next, let's look into BTC transactions on September 9th from the “first period” of the pump.
The scatterplot of September 9th, 2018, BTC transactions (fig 11) pictures an extraordinary
pattern, a period of intensive trading activity with a great number of large trades and varying
trade sizes. The intensive period lasted for only 5 minutes starting at 11 a.m. (see fig 12).

During that incredible outbreak almost 7,500 trades (39% of the day’s total) were carried out
with total volume of 34,600 BTC that accounted for ​over 94%​ (!!!) of the whole day’s volume.
ATS of trades was ​4.62 BTC​, while ATS over the rest of the day - only 0.15 BTC.

From this a very interesting questions arises: ​what caused this incredibly intensive trading
activity which only lasted for 5 minutes of the day?
Besides, the histogram of BTC transactions distribution during the 5-minute “splash” (fig 13)
shows only 910 transactions (12.1% of total) are smaller than 0.1 BTC but the number of large
trades (4,544) greater than 2 BTC account for ​over 60.5%​ of the total number.

Let’s look at the trading activity in the “second period”.

The scatterplot of transactions made on November 11th BTC (fig 14) shows another interesting
result. There are multiple series of equal or nearly equal trades (withing orange rectangles) and
a greater overall number of large trades than in the previous period.
The distribution histogram shows that 4,686 trades (31.6% of the total) are less than 0.1 BTC
and a number of large trades are greater than 2 BTC — 6,547 trades — that accounts for ​over
44%​ of the total transactions. This is a very high percentage, especially compared to 0.015% on
August 8th, the day of the pre-pump period.

Let’s look at the trades of one particular hour from 3 a.m. to 4 a.m. local time, containing one of
the series marked on fig 14.

On fig 16, one can see a large transaction series of around 10 BTC accounting for a vast part of
total trades number. While looking deeper, we counted the number of transactions of the same
size and their shares in the total.
The pie-chart on fig 17 displays the most frequent transaction sizes and their shares in the total
trades number in the observed hour. As we see more than 75% of 1,330 transactions are made
by only five closely commensurate and fairly large trade sizes.

Altcoin markets review

After a more detailed analysis of BTC trading activity on Bithumb, we will review other coins, not
in as much depth but to show the tendencies, which are pretty similar to Bitcoin’s.
Thus, in addition to BTC, there is an evident “comb-like” pattern on the “first period’s” hourly
charts of LTC, ETC, XMR, ZEC (see fig 18) and some other coins including OMG and BTG.
The gradually rising daily volumes abruptly dropped to pre-pump levels on November 12th
(except QTUM volume that dropped on November 10th) and can be distinguished on the daily
charts of LTC, ETC, QTUM, WTC (see fig 19) and some other coins.

The ATS of the four coins experienced a significant increase during the “first” and “second
period" of the pump as well (see fig 20)
WTC stands out from all the coins we observed, as it was only listed on the exchange on the
last day of August and had the shortest pump period which started on October 28th and lasted
till November 11th. For or that reason its pump was one of the most intensive. The inflated daily
volume of Waltonchain ​jumped by 350 times​ from 348k WTC (on average prior to the pump) to
122.5mln WTC (on average during the pump) only to then drop by​ by 1,450 times in one day
from 206.7mln WTC to 141.8k WTC on November 12th.
Fig 21 featuring the WTC hourly chart shows 4 to 12 hours long intensive trading activity periods
on each day with insignificant volume through the rest of time.
Moreover, the coins turnover during the pump on Bithumb exceeded its capitalization by several
times. For instance, on November 8th it was ​4 times larger ​(see fig 22).

Interestingly, in contrast to the other pumped coins, XMR and ZEC volume didn’t drop to their
pre-pump levels on November 12th. While XMR volume maintained the average daily values of
the “second period” after sliding down from the peak, ZEC volume slid from the peak as well but
dropped to August levels on November 19th, spiking the next day to half of the average “second
period” value and dropped again on November 21st. ATS performance of both coins was in line
with their trade volume trends (see fig 23).
And finally, the ongoing “third period” of the pump beginning on November 12th is characterized
by an abrupt drop in the trade volume in previously pumped coins down to the pre-pump levels
except aforementioned XMR and ZEC. Along with that, a new wave of pump started in DASH,
OMG, and BTG (see figs 24-26).
Moreover, OMG and BTG volumes were inflated to levels exceeding their capitalization.
OMG 24-hours trade volume was about ​3.5 times larger than its capitalization​ on November
28 (see fig 27).

BTG 24-hours trade volume on November 22th exceeded its capitalization by ​more than 1.8
times​ (see fig 28). As for the not very popular Bitcoin fork, the daily turnover of $650 mln is a
stellar figure which can be justified by numbers of other BTG markets as the second most active
one generated almost 900 times lower volume.

Summing up

Our analysis of the Bithumb charts revealed an apparent inflation of trade volumes which
started on 25th August and still continues today. The observed pump can be divided into ​three
periods​ with different characteristics of volume performance attributed to each of them.

The "first period" (which lasted until October 7th) is marked by a weird "comb-like" pattern of
very short intensive spikes during first few minutes of local time at 11 a.m., delivering a vast part
of the whole days transactions and over 90% (!!!) of the total trade volume. Those features are
attributed to BTC, LTC, ETC, WMR, ZEC, and some other coins including OMG and BTG.
The “second period” (October 8th - November 11th) is characterized by a gradual increase in
trade volume peaking near the period's end with an intensive yet distributed pump along each
day using multiple series of large size transactions. Among the most affected coins are BTC,
LTC, ETC, QTUM, WTC, XMR, ZEC, and others.

The now ongoing “third period” beginning on November 12th features an abrupt drop from the
previously inflated trade volumes (with some exceptions) and the start of DASH, OMG, and BTG
volume pumping. Notably, all pumped coins had their daily Average Transaction Size increased
manyfold during the pump. That fact we consider a primary sign of volume manipulations since
usually wash trade is carried out on large size transactions.

All these irregularities we detected suggest there are apparent trade manipulations being
performed on Bithumb beginning at the end of August. It has left us wondering why does one of
the leading Korean exchanges operating in regulated jurisdiction and reporting solid profits for
the first half of the year allow itself to engage in such malpractice.

Operating in such a way will never make the crypto industry great again!

What could the reason and purpose be for this foul play? We are also curious, what the Korean
regulatory bodies think of Bithumb and the other two local crypto exchanges’ (​Coinbit and
GDAC​) illicit activities?