Wash Trading Becomes a Growing Concern For Traders

Wash Trading Becomes a Growing Concern For Traders
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The working systems of digital assets can be quite complicated to understand and to function even. It is not that other non-digital economic variables are less complicated, but crypto being a relatively newer area, understanding concepts and talking countermeasures for foul practices can be tricky. 

Recently, traders of NFT assets have a new concern to look out for, which is “wash trading”. Wash trading is such a practice in the NFT sector where a trader can participate in both sides of the transaction, in order to boost the value of their NFTs. As a result, traders investing in NFTs have been witnessing an alarming rise in the number of fraudsters who are filling their pockets by artificially pumping up the prices of their NFTs. 

The NFT sector has been taken for a toll lately. There was issue with OpenSea’s NFTs, almost all of them being either fake or plagiarised. Then there was the Bored Ape NFT incident where people lost their valuable assets for previously listed cheap prices. And now, this practice of wash trading which is practiced by some traders which artificially raises the price of their NFTs. An analysis of the NFT sales shows that in 2021, traders engaged in hundreds of wash trading practices. These wash traders pocketed a sum of over almost $9 Million in 2021. Also, this analysis was done only on sales on Ethereum and wrapped Ethereum blockchain. So, the wash trading practices on other blockchain ecosystems is not included in this amount. Considering the volatility of the digital assets sector, many countries are grappling with a legal framework to put this sector in. 

Also Read: Crypto Will Never Be Legal Tender- India’s Finance Secretary

Chainanalysis, a crypto analysis platform has some interesting findings to note. They tracked some wallet transactions of self-financed addresses. Their finding was, out of the 262 reported users who sold their NFTs to such an address, 152 of those genuine users lost money. The fraudsters were profited by nearly $8.9 million in these transactions. Since wash trading still stands as a grey area in crypto trading, any legal action is yet to be taken. A spokesperson from Chainanalysis reported that, if existing ‘anti-fraud’ measures are applied to new NFT markets, the scenario could change. They also stated that since wash trading can create, does create an unfair marketplace in the NFT sector, the trust on investors in the NFT ecosystem can go for a toss.

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