Non-fungible tokens (NFTs) have witnessed a rise in exaggerated prices, liquidity, and money laundering – particularly via ‘wash trading’, according to recent research.
The sector, which has always seen volatile and unpredictable pricing, has also been subject to money laundering through NFT auctions and transactions.
Wash trading is an attempt to create a façade of demand for a stock, although it involves selling and re-purchasing the security to generate activity without any shares changing hands.
Illegal market manipulation explainer (read more).
A report from blockchain analytics platform Chainalysis highlighted that wash trading occurs through dubious flows running through the NFT sector, which has been ultra-hot in the past year.
Wash trading is illegal for financial securities and futures but the lack of regulation within the NFT sector facilitates its use.
But wash trading and money laundering are “extremely easy to trace on the blockchain” as the practice can be pervasive in the crypto markets, according to Kim Grauer, director of research at Chainalysis.
NFT platform LooksRare experienced serious trading upheaval due to wash trading, which last month included a Meebits NFT that sold for US$100mln worth of trading volume in two transactions.
There was a 30% rise in crypto-related cybercrime last year compared with 2020, while US$8.6bn of cryptos were laundered, Chainalysis said.