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More than 33% of NFT volume is from ‘Wash Trading’

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NFTs were arguably the hottest topic of late 2021 and early 2022. Pushed into mainstream adoption by projects like the Bored Ape Yacht Club, Azuki, Okay Bears, and others, NFTs were booming.

But as the general market went into a slump, non-fungible tokens also felt the pressure. As a result, valuations collapsed and top-tier projects like BAYC saw their floor prices suffer.

In the midst of all this, other problems also afflict the industry, such as price manipulations. This type of trading is known as Wash Trading.

NFTs with manipulated price

Wash Trading is the process of artificially inflating the price of an asset, simulating trading activity. For example, imagine that guy buys an NFT for 1 ETH. However, he wants to make it look like this is an expensive collectible, which he got at a bargain price. To do this, he creates another wallet and “buys” the token from himself for 10 ETH for example.

Thanks to the blockchain, anyone who checks this NFT will see that it was first bought for 1 ETH and then sold for 10, creating the illusion that the item has gone up in value.

Someone might then decide to spend more than 10 ETH on NFT thinking they are buying something expensive. However, in fact, instead of buying a rare item, in reality, the person will be buying an NFT with a manipulated price.

This problem can be extended to serve several purposes. For example, founders can artificially inflate the trading volume of their collections so that they become trending across multiple platforms.

Vijay Pravin, CEO and founder of NFT analytics provider bitsCrunch, said this is the biggest problem facing the NFT industry. According to him, more than a third of the total NFT trading volume across all markets is subject to operations like this.

Pravin believes this is because the NFT market is still very young. In other words, over time, he believes that the industry will clean itself of “junk projects”.

On the other hand, he believes projects like BAYC and CryptoPunks are unlikely to go away. This is because they are robust projects that have brought a lot of value to the crypto space.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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