A recent report notes how several NFT traders are engaging in “wash trading” to manipulate the market and create artificial activity.
The NFT market is filled with people buying their own NFTs to drive up prices, according to a report released this week by blockchain data firm Chainalysis.
The technique is known as “wash trading” involves buying and selling an item in order to manipulate the NFT market by creating artificial activity, a technique that was once common on Wall Street and has now been illegal for nearly a century. But the vast, unregulated NFT market has proven to be a golden opportunity for fraudsters.
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The report tracked instances of the same traders selling the same NFTs at least 25 times, in a “potential” case of “wash trading.”
Chainalysis identified a group of 110 purported NFT traders who have earned approximately $8.9 million from this practice.
The researchers also discovered significant money laundering evidence in the NFT market in the last half of 2021. The value sent to NFT marketplaces from scam-related addresses increased significantly in the third quarter of 2021, exceeding $1 million in cryptocurrency. Approximately $1.4 million of fourth-quarter 2021 sales came from such illegal addresses.
“Wash trading” in the NFTs market is a legally murky area. While “wash trading” is prohibited on the exchange, the practice has not yet been the subject of enforcement action.
The market for NFTs is estimated to be worth between $7 billion and $44.2 billion, with digital assets exploding in popularity in 2021 and which have been “embraced” by several celebrities including Mark Cuban, Tom Brady, and Reese Witherspoon.
Some question the legitimacy and necessity of NFTs as this new market sharply increases in popularity. High-profile NFT sales, such as last year’s record $69 million purchase of artist Beeple’s collection, are increasingly common.
But because digital tokens are not in the same category as stocks and bonds, they are not subject to the same laws and regulations. Numerous scams have emerged in the NFTs space in recent months, including fake NFTs and “dirty” money laundering.