Hong Kong-based cryptocurrency exchange BitForex was scrutinized after its website went offline following the reported withdrawal of $57 million from the exchange’s hot wallets on February 23. 

BitForex Shaken By Wash Trading Scandal And Website Shutdown

The incident was initially brought to light by decentralized finance (DeFi) detective ZachXBT on X (formerly Twitter), raising concerns about the exchange’s operations. BitForex has not issued any official statements regarding the situation, leaving users seeking answers on X/Telegram.

One month before the incident, BitForex’s CEO Jason Luo announced his departure, expressing confidence in the new leadership team’s ability to guide the exchange towards “greater horizons.” However, the sudden withdrawal of funds and subsequent website shutdown have intensified doubts surrounding BitForex’s operations.

Further allegations emerged in a report by digital assets data provider Kaiko on February 9, indicating that BitForex had the highest number of pairs with outsized volumes relative to their depth. 

This raised suspicions of potential wash trading, a manipulative practice to create artificial trading volume. The report highlighted particular concerns regarding the Litecoin (LTC) and Filecoin (FIL) pairs on BitForex, where volume figures appeared inconsistent with trade dynamics observed on reputable exchanges like Binance and Coinbase.

Kaiko’s analysis employed a volume/depth ratio and tick-level trades to identify potential wash trading patterns. Notably, BitForex’s reported volumes did not align with trends seen on other exchanges, and irregular volume patterns were observed for Polkadot (DOT) and LTC markets. 

Additionally, BitForex’s claim of higher volumes compared to major exchanges like Coinbase was contradicted by significantly lower web traffic, casting doubt on the veracity of their volume claims.

Credibility Crisis? 

Another red flag raised in the analysis was the presence of high spreads on the exchange, which indicated thinly traded and illiquid markets, according to Kaiko. 

Despite claiming significant volumes, the report noted that BitForex’s spreads were considerably higher than those observed on more liquid pairs on top exchanges. The discrepancy between reported volumes and actual trading conditions further called into question the reliability of BitForex’s volume data.

As the situation unfolds, the crypto community awaits official statements from executives regarding the $57 million outflow and the offline website. The allegations of wash trading and suspicious volume patterns add to the exchange’s credibility concerns. 

At the time of writing, the global cryptocurrency market continues to grow, with the total market capitalization currently standing at an impressive $1.94 trillion. Despite a slight dip of -0.26% over the past 24 hours, the market cap has increased by 84.79% compared to last year.

On the other hand, Bitcoin’s (BTC) market cap has passed a significant milestone, reaching $1.05 trillion, as it currently trades at the $51,100 level, down a slight 0.1% over the past 24 hours.

Featured image from Shutterstock, chart from TradingView.com