The federal government is looking into some unusual trading practices on Kalshi after more than $5 billion in nearly identical cryptocurrency trades. This has raised suspicions about potential “wash trading,” as reported by a news outlet.
The Commodity Futures Trading Commission is currently reviewing these trades to decide if they should launch a formal investigation. This information comes from a source familiar with the situation, according to the news report.
The investigation follows a period in which significant amounts of ether were traded at around $5,500 over the past month.
Such activity has sparked concerns about “wash trading,” which involves a trader simultaneously buying and selling the same asset to misrepresent market interest.
Kalshi has denied any evidence of wash trading, asserting that their trades are authentic and part of strategies intended to ensure liquidity in their new perpetual-futures markets.
The company also emphasized that wash trading is explicitly prohibited by their policies.
Elisabeth Diana, a spokesperson for Kalshi, stated that they have not been approached by the CFTC and don’t believe there’s any formal inquiry happening. She added that the trading patterns in question are typical of liquidity incentive programs seen in financial markets, urging caution regarding rumors circulating on social media, which she claims are driven by competitors.
Moreover, a working paper dated September 21, authored by someone using the pseudonym “OctopusTakopi,” alleged that the trading patterns on Kalshi’s perpetual futures markets exhibited signs of wash trading.
This paper evaluated approximately 4.1 million publicly reported trades on Kalshi, amounting to around $11.5 billion, conducted between September 5 and September 18, and made comparisons to hundreds of millions of trades executed on platforms like Binance and Bybit.
The findings revealed that about half of the trading volume on Kalshi’s perpetual futures was concentrated in a few repetitive, set dollar amounts.
Additionally, the author noted a similar pattern in Kalshi’s bitcoin market, where trades of about $5,000 and $2,500 represented 57% of the total volume.
Altogether, these concentrated trading clusters accounted for about $5.87 billion, or 51% of the analyzed $11.5 billion in Kalshi’s perpetual futures transactions.
In fact, the paper highlighted similar fixed-dollar trading patterns appearing in 17 of the 20 perpetual contracts offered by Kalshi during that time.
The researchers pointed out that these patterns have been noticeable since shortly after Kalshi began offering these contracts in June.
In an intriguing finding, they noted a significant shift in the dominant trade sizes in Kalshi’s bitcoin and ether markets that happened almost simultaneously on August 24.
Bitcoin trade sizes moved from approximately $4,000 and $2,100 to $5,000 and $2,500, while ether trade sizes jumped from around $4,500 to $5,500.
This transition occurred within about ten seconds, based on timestamps analyzed in the research paper.
The author speculated that this synchronized transition suggests a single trader adjusting parameters across both markets, though the public data does not disclose any trader identities, making it impossible to ascertain who is accountable.
