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Wash trading, an old fraudulent trading practice, has found its way into NFTs, giving this crypto scam a new name – NFT Wash Trading.
If done right, the scam can artificially inflate the price of an NFT and pass on to unsuspecting buyers who struggle to convert the blockchain-based collectible for a profit later. (If they wish to do so.)
NFTs took the stage of high performing asset classes in 2021, when a report by Chainalysis put the total value locked into purchasing NFTs at $44.2 billion, up from $106 million the year before (2020).
Not all of these trades were in the spirit of good investing. The article linked to the report states that 110 traders were able to make money from wash trading to the tune of $8.9 million.
Using self-financed wallets, these traders were able to trade NFTs by themselves, to make it look like the asset is desirable.
Unaware buyers then bid into this false inflation, allowing the wash traders to make a profit.
The main issue lies in regulation.
Financial institutions around the world are still attempting to understand how the technology works and legislation follows on that knowledge.
Laws are still set to come out and regulate this nascent asset class.
Organizations have begun to take action; the Commodity Futures Trading Commission charged a coinbase employee for wash trading on their platform and providing misleading information.
NFT wash trading is still a hit and miss when it comes to making money.
While some manage to reap a profit, the process can actually be quite arduous, requiring an asset to be traded multiple times before it goes up in value.
Alongside the 110 wash traders who made a profit, 152 went through the process and came out with lighter wallets, a total amount of $416,984 in losses.
A notable of NFT Wash trading was a CryptoPunk (CryptoPunk 9998) that was sold for 124,457 Ether. ($532 billion)
Upon closer examination, it was apparent that the transaction was done with the same person.
The buyer took a flash loan from multiple sources to pay the price of the CryptoPunk.
After the sale went through, the seller sent the Ether back to the buyer, an extremely odd move for the NFT market.
This article is sourced from the following links:
NFT wash trading explained (techtarget.com)
Scams Explained: What is an NFT Wash Trade? Is It a Crime? (nftnow.com)
What Is NFT Wash Trading? (coindesk.com)
Explained: What Is Wash Trading In Nfts? (cnbctv18.com)
What are wash trading and money laundering in NFTs? (cointelegraph.com)
