The Indicator from Planet Money - The crypto market is hot. But is it an illusion?

Episode Date: September 17, 2025

There has been an inordinate amount of trading activity recently in the crypto markets. But what if much of that activity was an illusion? A smokescreen? A fraud? Today on the show, we look at the practice of wash trading, and how it’s evolved in the crypto world. Related episodes: The fake market in crypto For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org. Fact-checking by Sierra Juarez. Music by Drop Electric. Find us: TikTok, Instagram, Facebook, Newsletter. See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.NPR Privacy Policy

NPR. The cryptocurrency market has been especially frothy in recent months. According to CoinDesk, trading activity on crypto exchanges clocked in at $9.7 trillion last month. To put how much that is in perspective, that makes it the busiest month for crypto trading this year and almost twice as busy as the same time last year. But what if a lot of this trading activity is an illusion? And what if it's really a smokescreen for fraud? This is The Indicator from Planet Money. I'm Adrienne Ma.

And I'm Waylon Wong. A few years ago, we did an episode on an emerging practice in the crypto market called Wash Trading. Today on the show, we'll look at how the practice is evolving and what regulators are doing about it. Most crypto trading happens on platforms that are unregulated by government watchdogs. And according to a 2023 study done by researchers in the UK, U.S. and China, about 70% of trading that happens on these unregulated platforms, is actually wash trading.

Leah Foley is U.S. attorney for the District of Massachusetts, and she explains watch trading like this. Wash trading occurs when a single trader or a number of traders working in coordination buy and sell the same asset to generate misleading market information. All right, so here's an example. Let's say Adrian and I have our new very own crypto token. Get it while you can.

Indicator coin. Okay, so Adrian, I sell it to you. Okay, and then I sell it back to you. And then I sell it back to you. And as we go back and forth, the trading volume for indicator coin goes up, the price goes up, and unsuspecting investors look at this and they think, wow, indicator coin must be a good investment. And this is how we get you. Leah says this is a classic use case for wash trading.

So the wash trades facilitate pump and dump schemes by creating the false appearance of a robust and active trading market with lots of holders and traders. But unscrupulous token creators are not the only ones who can benefit from wash trading. Crypto exchanges, you know, the platforms where people buy and sell crypto, also have an incentive to do it. In order to make money, crypto exchanges need users. But these users, they want to be where the action is, where a lot of trading is happening. And many researchers believe that crypto exchanges have often engaged in wash trading to artificially boost trading volumes and entice these users onto their platforms. She Lee teaches finance at the University of Reading in the UK. And she co-authored that 2023 study exploring how wash trading is used in crypto markets.

And when more traders come in, you know, they will contribute a transaction fee. So that would be a very important revenue for our crypto exchanges. So wash trading is one way for crypto exchanges to pump up their trading volume, to fake it until they make it. So that's the basic idea behind wash trading. But in the age of crypto, the way wash trading is done has gone through a few evolutions. Yang Yang is a lecturer at the University of Bristol, also in the UK. He worked on the same study as Shi Li. And he says in the early days of crypto, companies employed what he calls wash trading 1.0.

So basically, exchanges just print out fake trades on their database. So this is a very simple and effective way. But the drawback is people can spot this easily. Like almost if you have an accounting ledger and you just like write in fake entries. And demonstrate them on their front-end websites. Yeah, because this method was so easy to spot, Yang says companies eventually moved on to what he calls wash trading 2.0. That's where a company uses bots or hires an outside firm to execute wash trades. And he says this is harder to catch because you're not just adding numbers to a ledger.

These trades, whether they're being done by humans or bots, are actually happening. But sort of like a Patemkin village, it's all a facade. For a while, U.S. regulators had been slow to figure out how to tackle the growing problem of wash trading. But last year, the U.S. Department of Justice announced an approach that was at once new and old-fashioned. They launched a sting called Operation Token Mirrors. Who comes up with the names for these sting operations? It's usually a joint effort. I would love to be in that brainstorming session.

I'm just picturing everyone and wearing like FBI jackets. Operation Whalen kicks butt. Ooh, I like the sound of that. By the way, that was U.S. Attorney Leah Foley again, talking with their producer Cooper. Leah explained how Operation Token Mirrors, was designed to catch crypto companies engaged in wash trading. Her office worked with the FBI on the case.

So they actually set up a company and created their own crypto currency, and they included a website for the fake crypto. Then the FBI, posing as this crypto company, approached various people who offered volume support services, which is basically a less incriminating way of saying, we'll do wash trading for you. And when they did, this is about the time the feds sprang out of the bushes and yelled, gotcha.

As a result of this operation, the DOJ charged 18 individuals and companies with fraud and manipulation in the crypto market. Thus far, eight different defendants have pled guilty. And there are some people who pled guilty and fled the United States and others who are just outside the jurisdiction of the United States, but are still charged. Leah says her office will continue to pursue illegal activity in the crypto markets. But a few months ago, the Trump administration dropped a lawsuit against the largest crypto trading platform, finance.

The company had been accused of mishandling customer funds, lying to regulators, and engaging in wash trading. Even without the feds breathing down their neck, crypto companies can still exploit gray areas in the law. And one of our digital currency experts, Yang Yang, says Binance is actually a great example. Not long ago, Binance launched a program called Alpha Points. Basically, it's a system that incentivizes traders to keep actively trading. The more they trade, the more points they can earn.

And the more points they get, the more they can redeem them for rewards. And this helps pump up the trading volume on Binance. Yang actually calls this wash trading 3.0. So in this case, you can even argue does this even count for as war-trading or not. But in our opinion, the purpose of this large-scale trading are still just to boost up volume. We reached out to Binance for comment. A Binance spokesperson, Simon Matthews, rejected the comparison to wash trading. He added that users can choose how to engage with Binance Alpha and that they do not have to trade.

Which, I guess, brings us back to where we started. While there is certainly a lot of buzz around crypto right now, it is worth keeping in mind that this industry is still pretty unregulated, and things may not always be as they appear. This episode was produced by Cooper Katz McKim with engineering by Gilly Moon. It was fact-checked by Sierra Juarez and edited by Julia Ritchie, Kaking Kand is our editor and The Indicators for Production of NPR. Can you do your best Joe Bluth impression?

What's a line that Joe Bluth says? Your illusions, Michael.