- Liu Zhou, founder of cryptocurrency firm MyTrade, has admitted to orchestrating a large-scale market manipulation scheme
- By using a tactic called “wash trading,” Zhou artificially inflated the perceived demand and value of cryptocurrencies for his clients
- The MyTrade founder faces up to five years in prison, with sentencing scheduled for early 2025
Liu Zhou, the founder of market maker MyTrade, has pleaded guilty to market manipulation and conspiracy to commit fraud. Zhou admitted to employing automated bots to carry out “wash trades,” boosting client holdings’ apparent trade volume to attract unsuspecting investors. His actions reportedly contributed to the trading of millions of fraudulent transactions each day, bolstering MyTrade’s reputation in the competitive crypto market. The admission comes six months after another market maker, DWF Labs, denied reports that it engaged in $300 million of wash trading on Binance following accusations by the Wall Street Journal.
Wash Trading Scheme Unveiled
The primary tool in Zhou’s scheme was “wash trading,” an illegal tactic that involves buying and selling the same asset repeatedly to inflate trading volume. Prosecutors revealed that Zhou used this method to make specific cryptocurrencies appear more active and valuable than they were.
“Zhou’s tactics created an illusion of market demand, misleading investors who believed they were seeing genuine interest in these digital assets,” explained Assistant U.S. Attorney Rachel Lahey, underscoring the deceptive nature of his actions.
Zhou’s MyTrade firm provided a so-called “Volume Support” service, which is now defunct but was designed to carry out millions of wash trades daily. This service inflated trading volumes by staggering amounts, often doubling or tripling the recorded activity for cryptocurrencies that Zhou’s clients wanted to highlight.
“Investors put their trust in MyTrade’s credibility, not realizing that what they saw was an orchestrated illusion,” said U.S. Attorney Rachael Rollins, who also emphasized that the case serves as a crucial reminder of the need for transparency and fairness in cryptocurrency markets.
Sentencing and Future Impact
Zhou, who pled guilty in a Massachusetts federal court, now faces up to five years in prison. His sentencing, scheduled for February 2025, could signal a turning point in the regulation of crypto markets. Rollins stated, “We are committed to rooting out market manipulation at every level, and cases like this reinforce the message that deception will not be tolerated.”
Top crypto market-making companies Jane Street and Jump Crypto reduced their involvement in crypto trading in the U.S. last year due to increased regulatory uncertainty. The two firms, which were pivotal in providing liquidity for the crypto market, pulled out of the U.S. because of the tone adopted by lawmakers and regulators regarding policing the space, with Jane Street leaving the crypto space altogether.
