Cryptocurrency Wash Trading - A brief insight!

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Crypto wash trading is quite popular on the centralized cryptocurrency exchanges and the NFT (non-fungible tokens) industry as well. Through wash trading, crypto traders are able to repeatedly buy or sell a particular digital asset to manipulate market trading volume. As depicted by the crypto experts of the Best blockchain development company, in order to falsely signal liquidity cryptocurrency exchanges make use of the was trading process.



Crypto wash trading – Here is how everything works!

Crypto wash trading is basically a trading process where traders buy or sell cryptos rapidly to manipulate the market with misleading information. In several cases, it is observed that traders and brokers collaborate with each other while executing wash trades. There have been cases where the wash trades are even executed by investors resembling as a buyer and seller of the digital asset.


Key points to note –

· Wash trading might lead to an increase in the prices of the non-fungible tokens.

· Wash trading can encourage money laundering with the purchase of non-fungible tokens.

· Wash trading can create a one-sided marketplace for traders interested in purchasing artificially inflated tokens.

·  Wash trading can be executed easily in non-fungible tokens and allow the traders to bridge the digital wallets to the platform.

Taking the help of crypto wash many companies trade cryptocurrencies to create liquidity illusion and manipulate the value of the assets being traded in the exchanges. Cryptocurrency exchanges incentivize the assets to influence market prices and inflate trade volume consecutively. The exchanges even charge transaction fees to generate revenue and to gain market share helping attract more traders in the process.  

 

How is wash trading a possibility in the NFT marketplace?

Many crypto traders might hold a large number of digital collectibles in the form of NFTs or non-fungible tokens and hold ownership of the digital assets, which is the reason why the digital tokens are sold for higher prices which can be concerning. After Bitcoin’s unprecedented popularity the NFTs have also risen. Further, people making a profit out of cryptocurrencies can use their capital to purchase these high on-demand tokens (NFTs).


However, a wash trade might not have any value and cancel out other trades and there remains a possibility of using Crypto wash trading to create a fake number for an NFT. In the current NFT marketplace, wash trading is not accepted on every platform and it is estimated that wash trading averaged over 70% of the total volume on the unregulated cryptocurrency exchanges. As per the market report, over 80% of the top trading pairs of Bitcoin were wash traded which shows that wash trading plays a role at cryptocurrency exchanges.


Summing up, with Cryptocurrency development sky-rocketing with every passing year there have many trading ways that have cropped up. As of now, wash trading is not yet legal across the world, and given the decentralized or unregulated persona of cryptocurrencies, wash trading might find a way out in the digital asset trading ecosystem.

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