Manipulative practices are rising in the NFT space, increasing the risks of exaggerated prices and money laundering. The sector is turning volatile as the use of such practices grows and more people enter this market. Chainalysis, the blockchain analytics company, provided this insight in a report released by it on Wednesday. The report expresses fear that significant money-laundering and wash trading activities are occurring in this sector. The questionable funds are flowing through the NFT space, which is currently ultra hot and a subsector of the cryptocurrency market.
Massive NFT Transactions Taking Place
This report has come when the largest NFT selling and buying marketplace Open Sea reported a massive $4.9 billion transaction volume in January alone. Crypto market observers are alarmed by the increasing use of manipulative practices like wash trading. This technique is used by the traders to inflate the asset value by taking both sides of the sale. Interestingly, money laundering and wash trading are quite easy to trace in the blockchain system, according to the research director of the firm, Kim Grauer.
Wash Trading Effect
The demand for an asset can be boosted significantly by using the wash trading price manipulating technique. It is being used widely in the NFT market. The crypto market is already familiar with this practice, where wallet addresses are created pseudonymously without paying any charges and with minimum effort. Wash trading has been illegal in the traditional securities and futures market, but it is not enforced strictly in the NFT market. In fact, some platforms have it programmed and included in their reward model.
The Chainalysis report concludes that less than half the people indulging in wash trading benefited from the practice while others lost money. At the same time, the successful ones made profits that were more than the losses suffered by the unsuccessful wash traders.
