All you need to know about Wash trading and money laundering in NFTs

Cryptopunks, a Larva Labs NFT project, witnessed a “wash sale” on the Ethereum network in October 2021.

Wash trading may be undertaken by a trader or a firm for a variety of reasons. For instance, the goal could be to encourage purchasing in order to raise prices or to encourage selling in order to lower prices. 

A trader may do a wash sale in order to lock in a capital loss before repurchasing the asset at a lower cost basis, thus requesting a tax refund.

What is wash trading?

As previously said, wash trading is the process of selling and buying the same asset multiple times in a short period of time.

When a trader or investor buys and sells the same securities several times in a short period of time in order to deceive other market players about an asset’s price or liquidity, this is known as wash trading.

Traders employ wash trading as a market manipulation strategy to impact an asset’s trading activity and price. Typically, one or more colluding agents make a series of deals without taking into account market risks, leaving the antagonistic agents in the same position as before.

Process of a wash trading

The intention of the parties participating in a wash trade, as well as the outcome of such a transaction, allows wash trading to achieve its goal.

When an investor buys and sells tokens of the same asset at the same time, this is known as a wash trade. The definition of wash trades, on the other hand, goes a step further by taking into account the investor’s goal or intention and the result of the transaction.

Launder money concern

When NFT sales are targeted at “self-financed” locations, crimes such as money laundering and wash trading schemes occur.

Money laundering has long been an issue in the art industry, and it’s understandable why. Because of their history and the pseudonymity of crypto assets, many people wonder if NFTs are vulnerable to similar abuses. So, can you use NFTs to launder money?

Scammers, virus operators, and Chatex all use NFTs to launder money. Chatex is a cryptocurrency bank with the goal of making bitcoin transactions safe, simple, and accessible to a wide range of clients while preserving a functional advantage over traditional banking.

ALSO READ: Ireland bans political crypto donations

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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