NEW YORK, Feb 9 — NFT technology continues to make headlines by enabling the monetisation of original digital creations. However, a new report reveals that the crypto-art craze is not always a natural phenomenon. Some internet users are inflating prices by buying and selling their own non-fungible tokens — a practice known as wash trading.
This process involves creating the illusion of an imaginary demand for a cryptocurrency, or in this case NFTs, by artificially inflating its trading volume. Wash trading is often organised by large traders who have the ability to influence the market. But, in the world of crypto-art, this technique is implemented by a small group of internet users who are themselves taking on the roles of buyer and seller.
The Chainalysis platform analysed a volume of US$44.2 billion (RM184 billion) in cryptocurrency traded to acquire NFTs in 2021. It identified 262 users who each engaged in wash trading 25 times. One of them made sales to self-financed addresses 830 times in the hope of pocketing a capital gain at the expense of other NFT collectors.
Speculation and concerns
However, this technique does not always pay off. The profits made by some scammers did not compensate for the transaction fees they had to pay to move their NFTs from one wallet to another. Still, around a hundred internet users managed to generate US$8.9 million in revenue through wash trading.
According to Chainalysis, these findings are most likely the tip of the iceberg. It’s likely that wash trading is commonplace in the NFT world, given that it is (still) unregulated. Despite the high volatility of the cryptocurrencies they are backed by, these virtual tokens show no signs of waning. The NFT market is growing so fast that the Financial Times estimates it to be worth US$41 billion. That’s almost as much as the traditional art market, estimated at around US$50 billion.
NFTs spur as much concern as they do interest. They have been the subject of numerous disputes in recent months, particularly concerning intellectual property rights. Indeed, more and more artists’ works are being illegally reproduced as lines of code to capitalise on this new art market. The OpenSea platform recently revealed that 80 per cent of the NFTs created on the platform with its free minting tool were fraudulent, spam or plagiarism. Caution is therefore advised. — ETX Studio