Fake Chinese Bitcoins & Litecoins Commonplace At Chinese Exchanges Evidence Shows
The accusations came fast and furious Sunday when a Reddit thread appeared in r/BitcoinMarkets describing the heavy manipulation of Bitcoin and Litecoin in China. The story is that OKCoin, Huobi, and BTC China are introducing fake fiat currency, fake Chinese Bitcoins, and fake Chinese Litecoins on their exchanges. Since it is unlikely all users will cash-out at once, the Chinese exchanges can increment a user’s fiat balance or Bitcoin/Litecoin balance by whatever amount.
These three exchanges charge no fees for trades, while most other worldwide exchanges charge significant fees. Many are wondering how these companies are still running if they do not have an obvious business model. Additionally, the trading volumes at these exchanges are so staggeringly large that it points to mass market manipulation by bots and trading algorithms. Is it possible these three unregulated Chinese companies could be playing Russian roulette with company Bitcoins?
Chinese Markets Show Unusually High Volume
BitcoinWisdom lists volumes for the last 30 days as follows:
Bitcoin USD: 1,076,481 BTC
Bitcoin CNY: 3,583,043 BTC
Litecoin USD: 5,618,361 LTC
Litecoin CNY: 249,009,181 LTC
There are 3.32x as many chinese bitcoins changing hands than dollar denominated bitcoins. And the Litecoin volume is stunning: 44.3x the number of trades in Yuan vs. Dollars.
The classic explanation of this has been that Litecoin is more popular in China than in the rest of the world. With Chinese exchanges offering no fees, it would make sense that more Litecoins would trade on Chinese exchanges.
That is until you consider that there are only 32,500,000 total Litecoins in circulation according to CoinDesk. This means that each Litecoin is being traded on average almost 8 times in a single month. With a 24-hour volume of 14 million Litecoins (Sunday’s volume), that means almost half the Litecoins in circulation saw action (on average) this Sunday.
The exchanges explain the volume by saying it is just a small number of Litecoins trading lots of times. However, the exchanges refuse to say who is operating the bots on their site. Most traders are not sophisticated enough to write custom software for a bot that integrates and trades on a Bitcoin exchange. We are supposed to believe it is single person home traders who are programming bots and trading hundreds of millions dollars worth of Litecoins?
The allegations here will be difficult to prove due to a lack of transparency by Chinese exchanges. According to Forbes Chinese accounting fraud is so commonplace that it is considered standard to cheat. These Chinese exchanges should definitely not be trusted until they reveal why there is so much Litecoin volume, and who it is coming from.
As it stands, these three Chinese Bitcoin companies of OKCoin, Huobi, and BTC China are more like Chinese banks, than Chinese Bitcoin exchanges. They are loaning and leveraging Bitcoins and Litecoins in incredible ways.
Let us not forget that it was a MTGox Willy bot that had a big impact on the last bull run. And now it could just as easily be a similar bot, but trading in the opposite direction.
It the end, it is possible that government regulation could help Bitcoin in this case. This would mean a greater integration into mainstream culture as well.
If you have more information about this developing story, leave BitcoinPriceLive a comment below!