Feds Scrutinize $5 Billion in Unusual Kalshi Trades Amid Wash Trading Concerns

The federal government is scrutinizing unusual trading activity on the Kalshi platform, with billions of dollars worth of near-identical cryptocurrency trades raising questions about potential "wash trading," according to a report.

The Commodity Futures Trading Commission (CFTC) is examining the trades and will determine whether to open an enforcement investigation, The Wall Street Journal reported, citing a person familiar with the matter. This scrutiny follows a period where over $5 billion in ether trades clustered around the $5,500 mark, according to the Journal.

Wash trading involves transactions where a single market player simultaneously buys and sells the same asset to create a false impression of market activity. Kalshi has denied finding evidence of wash trading, stating that the trades were legitimate and designed to provide liquidity in its nascent perpetual-futures markets. A spokesperson for Kalshi also indicated that wash trading is explicitly prohibited under the company's rules.

"We have not been contacted by the CFTC and don’t believe there is any formal examination," Elisabeth Diana, a spokesperson for Kalshi, told The Post. "As we’ve said, these data patterns are typical of liquidity incentive programs and common in financial markets. Don’t believe everything you read on X, a lot of the discourse was rumors seeded by competitors."

A working paper published online on September 21 by an author using the pseudonym "OctopusTakopi" alleged that unusual trading patterns on Kalshi's perpetual futures markets exhibited characteristics associated with wash trading. The paper analyzed approximately 4.1 million publicly reported Kalshi trades, valued at around $11.5 billion, between September 5 and September 18. It compared this data with trades on other platforms like Binance, Bybit, and Hyperliquid.

The research indicated that nearly half of Kalshi's perpetual futures volume during that timeframe was concentrated in a small number of repetitive, fixed-dollar trade sizes. Similarly, concentrated activity was observed in Kalshi's bitcoin market, where trades of roughly $5,000 and $2,500 constituted 57% of the volume. These three clusters alone accounted for approximately $5.87 billion, or 51%, of the $11.5 billion in Kalshi perpetual futures volume analyzed.

The study also noted that similar fixed-dollar trading patterns appeared in 17 out of the 20 Kalshi perpetual contracts traded during the period. The researchers pointed to a specific incident on August 24 where dominant trade sizes in Kalshi's bitcoin and ether markets shifted almost simultaneously. Bitcoin trades moved from approximately $4,000 and $2,100 to $5,000 and $2,500, while the dominant ether size changed from about $4,500 to $5,500 within approximately 10 seconds. The author suggested this synchronized change was consistent with a single operator adjusting trading parameters across both markets, although the publicly available data does not identify traders.