U.S. law enforcement cases against alleged cryptocurrency market manipulation have once again put the spotlight on wash trading and the blurred lines between market makers and market manipulators.
Federal prosecutors in California this week filed charges against 10 individuals associated with companies including Gotbit, Vortex, Antier and Contrarian, accusing them of coordinating transactions to inflate token prices and trading volumes before selling them off based on artificial demand.
The case stems from an FBI undercover operation in which agents created their own tokens to identify companies offering manipulative services.
Cryptocurrency experts Jason Fernandes of AdLunam and Stefan Muehlbauer of Certik told CoinDesk via Telegram interviews that the strategies promoted by the defendants were designed to promote trading activity, but actually amounted to pump-and-dump schemes and wash trading, leaving behind evidence that was much more common than expected.
Muehlbauer said: “Despite increased enforcement, wash trading remains a widespread problem, especially among small-cap tokens and unregulated exchanges.” Fernandes said, “It is much more common than most investors realize.”
Gotbit founder Aleksei Andriunin pleaded guilty last year to two counts of wire fraud and conspiracy to commit market manipulation and agreed to forfeit $23 million. U.S. prosecutors described his crimes as a “broad conspiracy” to manipulate token prices for paying customers.
Expanding volume becomes a shortcut
The details of the market manipulation exposed by the Justice Department were impactful, but the underlying conduct was not.
“Wash trading exists because in crypto, liquidity is a perception,” said AdLunam co-founder Jason Fernandes. “Volume attracts attention, listings, and capital, so inflating volume becomes a shortcut to correlation.”
The mechanics are simple: trades are coordinated back and forth between accounts to simulate demand, often outsourced to market makers to create the illusion of organic flow.
Fernandez added that this situation is much more common than investors think or expect, especially among long-tail coins and smaller exchanges with limited regulation.
“In many cases, it’s not just rogue actors who are affected. Projects, market-making companies and even venues themselves benefit from higher reporting volumes.”
The U.S. Department of Justice said the companies named in the indictment used coordinated transactions to inflate trading volume and prices, ultimately selling tokens to unsuspecting investors at artificially high prices.
Recent studies have repeatedly pointed to surges in activity in cryptocurrency markets. Columbia University’s analysis of Polymarket found that about 25% of historical transaction volume showed signs of wash trading, while early Dune Analytics data showed that tens of billions of NFT transaction volume on Ethereum stemmed from similar activity.
Certik: Wash trading remains a ‘common problem’
“The U.S. Department of Justice’s recent actions send a clear signal,” said Stefan Muehlbauer, director of U.S. government affairs at CertiK. “The ‘Wild West’ era of cryptocurrency market manipulation is facing a coordinated global crackdown. While these prosecutions represent a significant victory for market integrity, wash trading remains a significant issue.”
He said the motivations behind the practice remained intact despite years of scrutiny. Token issuers often face pressure to meet exchange listing requirements tied to trading volume, leading some to turn to market makers to simulate activity or deploy bots that trade against themselves.
“The ‘why’ is simple: the illusion of value,” Muhlbauer said. “This illusion has real consequences,” particularly because artificial trading volumes distort price discovery, mask weak liquidity, and can channel capital based on signals that are untrue. “High trading volume signals to investors and exchanges that the token is hot and liquid.”
“The victims are investors who rely on liquidity and large amounts of data,” Fernandez said. “Fake trades distort markets, leading to “mispricing of risk and capital flows based on inauthentic signals.” “
Enforcement is good for the market
The latest DOJ case may offer a glimmer of hope for the industry.
“It’s not just the accusations that are worth noting, but also the methods,” Fernandez said. “When the FBI creates tokens to catch market manipulation, you are no longer in a gray area. This is a signal from the United States that the cryptocurrency market structure is now firmly in the realm of law enforcement.”
The AdLunam co-founder said that for market participants, the line between legitimate liquidity provision and manipulation is coming under greater scrutiny.
Efforts to detect and reduce false transactions are constantly improving. Regulated exchanges are deploying more sophisticated monitoring tools, and analysts are increasingly looking beyond overall trading volumes to metrics such as order depth, slippage and counterparty diversity.
Enforcement may ultimately push the market forward, although for now, the DOJ case reveals the prevalence of fake trading, undermining trust in cryptocurrency markets.
“Cryptocurrency is moving from a loosely regulated frontier market to one that must withstand institutional scrutiny. Ironically, such enforcement could ultimately strengthen the asset class,” Fernandez said.
In Muhlbauer’s words, “The message to the industry is clear: What was once considered ‘market making’ is now being accused of wire fraud and market manipulation.”
