The oldest newspaper in South Korea, Seoul Shinmun, reported on August 26 that the third-largest cryptocurrency exchange in the country, Coinbit, had been seized by law enforcement authorities on allegations of bloating trading volumes. According to the report, the South Korean authorities invaded the exchange offices on Wednesday morning after discovering that the platform had feigned for more than 99 percent of its trading volume.
Trade washing is a widespread practice among cryptocurrency exchanges globally. According to a Bitwise crypto management firm report back in March, more than 95 percent of the trading volumes are fake, with exchanges creating pseudo accounts and using them to trade back and forth, making the respective platforms seem more popular and active. Coinbit also used this illicit method to magnify its trading volume.
Coinbit made over $85 million in illicit proceeds
The South Korean Authorities claim that the CEO of Coinbit, Choi Mo, and his team allegedly purchased different crypto assets using fake accounts, impacting the over 250,000 active monthly users on the platform. Currently, Coinbit has discontinued all its activities, pending investigations.
Notably, the major Korean exchange managed to manipulate its trading volume by creating two accounts with all its funds. One of those accounts falsely traded the major tokens such as BTC, ETH, XRP, and USDT pairs with pseudo accounts.
Clarification on a previous tweet*
Coinbit, South Korea's third largest cryptocurrency exchange, has effectively halted operations.
Assets have been frozen and the CEO awaits trials after an investigation revealed that 99% of the exchange's trading volume was fraudulent. pic.twitter.com/CQG2nCR0fL
— TheNews.Asia (더뉴스아시아) (@TheNewsDotAsia) August 26, 2020
On the other hand, Coinbit used the second account to trade hidden tokens and ICOs. The obscure tokens are only obtainable from one exchange, that is, Coinbit. By doing this, the major exchange controlled their supply, tampering with their valuation to inflated prices, and ultimately selling them to unsuspecting users on the platform.
South Korean authorities confines exchange’s head office
In addition to the market manipulation strategy, the wash trading scheme netted the major crypto exchange with deceitful revenue over $85 million.
Furthermore, the wash trading scheme has made the South Korean authorities raise doubts regarding Coinbit’s bookkeeping ways. This draws attention to more professional misconduct and fraud. Meanwhile, the South Korean authorities have isolated the exchange headquarters and some of its branches in Korea.