A US law enforcement case against alleged cryptocurrency market manipulation is once again shining a spotlight on wash trading and the blurred line between market makers and market manipulators.
Federal prosecutors in California this week charged 10 people linked to companies including Gotbit, Vortex, Antier and Contrarian, accusing them of coordinating transactions to inflate token prices and volumes before selling them on artificial demand.
The case arose from an FBI sting operation in which agents created their own token to identify companies offering manipulation services.
The defendants marketed strategies to boost trading activity that actually amounted to pump-and-dump schemes and wash operations, leaving evidence that is much more common than expected, crypto experts Jason Fernandes of AdLunam and Stefan Muehlbauer of Certik told CoinDesk via Telegram interviews.
“Despite increased law enforcement, wash trading remains a widespread problem, particularly among smaller capitalization tokens and on unregulated exchanges,” Muehlbauer said, while Fernandes stated that “it is much more common than most investors realize.”
Gotbit founder Aleksei Andriunin, named in the recent Justice Department indictments, pleaded guilty to two counts of wire fraud and conspiracy to commit market manipulation last year, and agreed to forfeit $23 million. US prosecutors described their crimes as a “wide-ranging conspiracy” to manipulate token prices for paying customers.
Inflating volumes becomes a shortcut
The details of market manipulation exposed by the Department of Justice are shocking, but the underlying behavior is not.
“Wash trading exists because in cryptocurrencies, liquidity is perception,” said Jason Fernandes, co-founder of AdLunam. “Volume attracts attention, quotes and capital, so inflating it becomes a shortcut to relevance.”
The mechanics are simple: Coordinated accounts are traded back and forth to simulate demand, often outsourced to market makers who are paid to create the illusion of organic flow.
It is much more common than investors believe or expect, particularly in long-tail tokens and on smaller exchanges where oversight is limited, Fernandes added.
“In many cases, it’s not just dishonest actors. It’s projects, market-making companies, and even the venues themselves, all of which benefit from higher reported volume.”
The Justice Department said the companies included in its indictment used coordinated operations to inflate volumes and prices, ultimately selling tokens at artificially high levels to unsuspecting investors.
Recent research has repeatedly pointed to inflated activity in crypto markets. An analysis from Columbia University’s Polymarket found that about 25% of historical volume showed signs of wash trading, while previous data from Dune Analytics suggested that tens of billions in NFT volume on Ethereum emerged from similar activity.
Laundering trade remains a ‘widespread problem’: Certik
“The recent actions of the US Department of Justice send a clear signal,” said Stefan Muehlbauer, head of US government affairs at CertiK. “The ‘Wild West’ era of cryptocurrency market manipulation is facing a coordinated global crackdown. While these allegations represent a major victory for market integrity, wash trading remains a major concern.”
Despite years of scrutiny, the incentives behind the practice remain intact, he said. Token issuers often face pressure to meet listing requirements tied to trading volume, leading some to turn to market makers to simulate activity or implement robots that trade against themselves.
“The ‘why’ is simple: the illusion of value,” Muehlbauer said. “That illusion has real consequences,” particularly because artificial volume distorts price discovery, masks weak liquidity and can channel capital based on signals that are not real. “Large volume signals to investors and exchanges that a token is active and liquid.”
“The victims are the investors who depend on that liquidity and a large volume of data,” Fernandes said. “Wash trading distorts markets, leading to “mispriced risks and capital flows based on signals that are not real.”
Law enforcement will benefit the market
It highlights the latest case from the Department of Justice that may bring a ray of hope to the industry.
“What is notable is not only the position but the method,” Fernandes said. “When the FBI is creating tokens to detect market manipulation, you are no longer in a gray area. This is what the United States indicates that the structure of the crypto market is now firmly in law enforcement territory.”
For market participants, the line between legitimate liquidity provision and manipulation is coming under deeper scrutiny, the AdLunam co-founder said.
Efforts to detect and reduce laundering trade are improving. Regulated exchanges are deploying more sophisticated surveillance tools, while analysts increasingly look beyond headline volume to metrics such as order book depth, slippage and counterparty diversity.
Ultimately, enforcement may push the market forward, although for now, the Justice Department case shed light on how widespread wash trading remains, undermining trust in crypto markets.
“Cryptocurrencies are moving from a lightly policed frontier market to something that has to withstand institutional scrutiny. An irony is that an application of these types of measures can ultimately strengthen the asset class,” Fernandes said.
In Muehlbauer’s words, “the message to the industry is clear: what was once dismissed as ‘market making’ is now being prosecuted as wire fraud and market manipulation.”
