If nothing else, the NFTs boom is going to give us all an education in key financial-crime terminology. The latest example being ‘wash trading‘. That’s when someone sells a security to themselves (or to another trader they’re in cahoots with) to make it seem more valuable than it really is, so that they can then sell it to someone else for an inflated sum.
Research firm Chainalysis has been doing some digging around NFT sales to identify whether wash trading is happening in this market and, guess what? It is! Chainalysis identified 262 wash traders – spotted because they’d sent cryptocurrency to other wallets that immediately used it to buy an NFT from them – who it thinks collectively made $8.5m in profits from the subsequent (inflated) sales.
“While wash trading is prohibited in conventional securities and futures, wash trading involving NFTs has yet to be the subject of an enforcement action. However, that could change as regulators shift focus and apply existing anti-fraud authorities to new NFT markets,” it noted.
The message for Music Ally readers exploring NFTs is fairly obvious: don’t do wash trading, and don’t deal with companies who suggest it.