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Traders are selling themselves their own NFTs to drive up prices

Many NFT traders are engaging in wash trading, says a new report.
bored ape NFT blockchain, non fungible token bored ape face.  NFT artwork conceptual
Galena Georgieva via Getty Images
Amrita Khalid
Amrita Khalid|@askhalid|February 4, 2022 3:28 PM

The NFT marketplace is rife with people buying their own NFTs in order to drive up prices, according to a report released this week by blockchain data firm Chainalysis. Known as “wash trading”, the act of buying and selling a security in order to fool the market was once commonplace on Wall Street, and has been illegal for nearly a century. But the vast, unregulated NFT marketplace has shown to be a golden opportunity for scammers.

The report tracked instances of the same traders selling the same NFTs back and forth at least 25 times, a likely incident of wash trading. It identified a group of 110 alleged NFT wash traders who have made roughly $8.9 million in profit from this practice. Researchers also discovered significant evidence of money laundering in the NFT marketplace in the last half of 2021. The value sent to NFT marketplaces by addresses associated with scams spiked significantly in the third quarter of 2021, worth more than $1 million worth of cryptocurrency, according to the report. Roughly $1.4 million dollars of sales in the fourth quarter of 2021 came from such illicit addresses.

“NFT wash trading exists in a murky legal area. While wash trading is prohibited in conventional securities and futures, wash trading involving NFTs has yet to be the subject of an enforcement action,” wrote the authors of the report.

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NFTs, or non-fungible tokens, are a new asset class of digital tokens that exist on the blockchain and are primarily purchased with Ethereum, a form of cryptocurrency. The crypto collectibles can consist of anything from a two-dimensional image to a GIF to a song. The NFT marketplace is estimated to be worth anywhere from $7 billion to $44.2 billion. The digital assets skyrocketed in popularity in 2021, and have been embraced by celebrities like Mark Cuban, Tom Brady, and Reese Witherspoon.

Skeptics have questioned the legitimacy and necessity of NFTs as the still relatively new space has spiked in popularity. High-profile NFT sales, such as last year’s record-breaking $69 million purchase of the artist Beeple’s collection, have been increasingly frequent. But since the digital tokens are not a security, they’re not subject to the same US laws and regulations governing stocks, for example. Numerous scams have cropped up in the NFT space in recent months, including counterfeit NFTs and money laundering.

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Traders are selling themselves their own NFTs to drive up prices