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Wash Trading -The New Disastrous Scam

Wash Trading
Wash Trading is a New form of scam which scammers are relentlessly using and have become the latest trend in the market.
So what is Wash Trade? Let’s understand the concept First

Wash Trading is a form of Manipulation in which the Investor simultaneously sells and Buys the Financial Instruments and mislead the market place. Here the investor will place the order and buy order by themselves or vice versa. Why is this practice done? Possible Reasons Could be

  1. Artificially Increase the Trade Volume So that it creates an illusion that instrument has more demand
  2. Generate Commission Fees to Brokers.

Trading Scam

  • It would be better known as Currency Scam, and People who are more obsessed with Cryptocurrency have a bad news.
  • More than half of the Bitcoins Trades are Fake. Wash Trading Practice is banned in United States since 1936. For example imagine you’re a writer who has self-published a novel.
  • You really, want to get your book out to a bestseller list because people who read novels often use bestseller lists as a guide to what they should buy next.
  • So to do this, you create a bunch of bogus accounts on Amazon. You allocate a bunch of money to each one, and you use those accounts to buy 100,000 of your e-books. Presto, your book goes to No. 1 on the bestseller list. And now people are interested.
  • And with a bit of luck, they also start buying, which is where you start to make money. But your original investment – that money that you spent to buy all those books from yourself – goes right back into your pocket. It is, as the phrase goes, a Wash. Government has strictly said that Wash Trading is Illegal.
  • And the Actual Problems with Crypto is No one has really Determined what Crypto Assets Are and No one has Jurisdiction Over them,

Insights

  • Getting Trapped online, Its not a new trend. But Scammers have come up with this new Idea. Several Non Fungible Tokens (NFTs) Trading Platforms allow users to trade without identifying themselves by connecting their wallet to the site. This means several wallets can be created and linked by using a single user.
  • At least $ 44.2 billion in Cryptocurrencies was transmitted to Ethereum smart Contracts related to NFT market places and collections. Industry analysts says that Successful wash traders are those who perform many NFT trades.
  • Anonymity is the biggest challenge Crypto Industry is facing currently. It becomes difficult in such a scenario to police in the crypto realm.
  • As of April 2022, wash trading accounted for $18 billion or 95% of overall trading volume on NFT marketplace.

In fact, in order to legally assert that a wash trade has been made, one must establish two forms of precedent:

  • Intent: To legally establish that wash trading has been conducted in any form or fashion, the parties involved  must be proved to have entered into the trade deliberately. In this case, the adjudicators in question can reasonably assert that a wash trading violation was committed intentionally, in order to benefit one, or all, of the parties involved. Should this be found to be true, the regulators will take the necessary steps to reprimand those offending parties.
  • Result: As you might expect, the transaction under scrutiny must have resulted in a wash trade. By this definition, the investors or entities that both bought and sold the asset/security must be shown to have done so at the exact same time . They must also prove to be associated with the accounts that made the trade, or at least have some kind of beneficial ownership of the asset/security in question.

What if you have been victimized?

  • Before investing, it is crucial to understand how the NFT is being marketed and promoted. Similar to the due diligence taken in evaluating a rug pull, identifying a wash trade requires you to :
  1. Actually look at the block chain and where money is being sent, as well as.
  2. Inquire with the community on whether they are familiar with the project and their experience with their investment. 
  • But, in the event you have been the victim of a wash trading, the unfortunate reality is that you have an uphill battle in ever seeing your money again. 
  • The lack of sophistication in industry available tools/mechanisms that could accurately identify and/or predict potential risks, as well as proving intent by the “known” parties to the transaction, make it a near-impossible feat — at least right now. 
  • As NFTs are still nascent with respect to their regulation and oversight, applying traditional wash trading rules falls under a “gray area” for lawmakers, but doesn’t eliminate the unethical and illegitimate character traits that still involve the intent to mislead the market and investors. 
  • Ultimately, it will require our legal landscape to continue diving into the NFT space to better understand their mechanics, tokenomics, application, and utilization 
  • This Malicious Practice is common in the world of art, where criminals purchase an art piece with illicitly acquired money and sell them off later to get white money and dissociate themselves from criminal activities. Money laundering needs to be monitored meticulously by marketplaces regulators and law enforcement.
  • Understanding the loopholes and the ways NFTs can change the relationship of block chain with the real world will help investors and the crypto industry to prevent the potential abuse of NFTs and make investment in these assets safe and secure for the users.
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