By George Ward
Mark Cuban, a top crypto investor, and owner of Dallas Mavericks, has opined that the wash trading of cryptos on centralized exchanges (CEXs) will cause the subsequent “implosion” in the crypto sector.
More Crypto Woes To Occur In 2023 – Cuban
Cuban made the recent statement on January 5th while speaking with The Street in an interview. The investor predicted that 2023 would also see its fair share of cryptocurrency-related crises following the controversies that rocked 2022.
Last year, Cuban invested in several Web3 and crypto startups; according to him, “the detection and eradication of wash trades on CEXs” will be the next event that will significantly influence the crypto sector.
“There are millions of dollars in liquidity and trades for coins that have almost no use. I do not see how such coins can be very liquid,” Cuban added.
Wash trading has become a regular occurrence in the crypto industry. Several unregulated crypto exchanges have resorted to wash trading to increase their ranking on platforms like CoinMarketCap and CoinGecko.
According to US law, wash trading is an illegal activity. It is a process whereby a bot or human trader purchases and sells a cryptocurrency to create misleading information or trading volume in the market.
Wash traders aim to artificially hike transaction volume, so other traders are misled to buy more tokens, pushing the price up. In summary, wash trading is a pump-and-dump scheme as the orchestrators end up dumping the token after it rises.
Meanwhile, Cuban clarified that he was only making a forecast and said, “I do not have any data to back my opinion.”
Wash Trading In The NFT Sector
Furthermore, recent research published by the National Bureau of Economic Research (NBER) in December revealed that 70% of trading volume on unlicensed exchanges was wash trading. The researchers at NBER utilized a behavioral and statistical pattern to ascertain which transactions were real or fake.
In addition, another study by Forbes carried out on 157 CEXs revealed that over 50% of BTC trading volumes were market manipulations. Meanwhile, wash trading does not occur only on centralized crypto exchanges.
Another analyst argued that it occurs in other crypto sectors. On January 5th, Mati Greenspan, the CEO of Quantum Economics, argued that 42% of NFTs trading volume is wash trading. “Yes, it is 2023, and we are still hearing about wash trading,” Greenspan tweeted.
According to Greenspan, crypto firms use wash trading for hiking tax losses. Through wash trading, they make the tax man believe there has been a significant loss which is not valid.