Crypto token wash trading on centralized exchanges will be the cause of the next crypto “implosion”, according to Dallas Mavericks billionaire owner and crypto investor Mark Cuban.
In an interview with The Street on January 5, the billionaire investor said that 2023 will not be short of crypto scandals after the many failures that plagued 2022.
Cuban, who has backed several crypto startups and Web3, said he believes the biggest impact on the industry will be “the discovery and elimination of wash trades on central exchanges.”
“There must be tens of millions of dollars in trade and liquidity for tokens that don’t work,” he said before adding, “I don’t know how it could be that liquid.”
Wash trading, which is illegal under US law, is the process by which traders or bots buy and sell the same crypto asset to provide misleading information to the market.
The goal is to create artificial volume so that retail traders jump on the bandwagon and push prices up. In essence, this is a pump-and-dump scheme.
Cuban said it was just a prediction, adding “I have no specifics to offer to support my prediction.”
Up to 70% of volume on unregulated exchanges is wash trading according to a December report by the National Bureau of Economic Research (NBER).
Researchers use statistical and behavioral patterns to determine which transactions are legitimate and which are fraudulent.
Furthermore, a 2022 study by Forbes of 157 centralized exchanges found that more than half of Bitcoin trade volume was fake.
related: Mark Cuban to Bill Maher: ‘If you have gold, you’re dumb as a fuck… Just ask for Bitcoin.’
Wash trading is not limited to centralized exchanges. On January 5, Quantum Economics CEO and former eToro senior market analyst, Mati Greenspan, said that 42% of all NFT volume has been traded.
yes. It’s 2023 and we’re still talking about a wash trade. https://t.co/y9kiLbu4Eu
— Mati Greenspan (@MatiGreenspan) January 5, 2023
He added that wash trading is also used to generate tax losses, making it appear (to tax officials) that there are bigger losses than they actually are.