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The Dallas Mavericks owner is skeptical about the trading volume of some cryptocurrencies.
Key Point
- Mark Cuban believes wash trading could trigger the next cryptocurrency implosion.
- Wash trading is the buying and selling of assets by a single person in order to manipulate the market with artificial trading volumes.
- One analysis found that more than half of crypto trading volume is likely fake or uneconomical.
Cryptocurrencies suffered a high-profile collapse in 2022. His one of the biggest cryptocurrencies, Terra (LUNA), crashed in his May. And one of the largest cryptocurrency exchanges, FTX, filed for bankruptcy in November. Founder Sam Bankman Freed Charged with fraud and money laundering.
The hope for cryptocurrency investors is that in 2023 no such incident will occur. He believes the next potential crypto implosion is “the detection and removal of wash trades on central exchanges,” he said. Interview with TheStreet.
Cuban has clarified that he has no details to back up his speculation.if you invest in cryptocurrenciesit is important to be aware of what is happening and what to watch out for.
What is wash trade?
Wash trading is the illegal practice of one person buying and selling the same asset to manipulate the market. By doing so, asset owners may increase trading volume and mislead potential investors.Originally stock marketbut can also be used to manipulate other markets such as cryptocurrencies.
As an example of how this works, let’s say you own $1 million worth of crypto tokens.you sell it to someone else crypto wallet in your control. You can continue to use the same amount of cryptocurrency minus transaction fees. And your trade added $1 million in artificial trading volume.
Scammers often use wash trading as part of their fraudulent trading. Pump and Dump Cryptocurrency ScamThey buy and sell their own tokens to make it look like cryptocurrencies are frequently traded. Then promote your cryptocurrency on social media. Once you’ve convinced people to invest and pushed the price up, sell your tokens for a profit. After that, the price will plummet and all new investors will suffer losses.
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Cryptocurrencies likely have wash trading issues
because How cryptocurrencies work, the market is particularly vulnerable to wash trading. Crypto wallets are not tied to the owner’s identity. Some cryptocurrency exchanges allow you to trade by connecting your wallet without requiring identity verification. This makes it very easy for scammers to set up multiple wallets and exchange their own cryptocurrencies.
Non-Fungible Token (NFT) I have this same problem. If you own an NFT and want to make it more valuable, you can buy it yourself at a high price.
Recent data supports Mark Cuban’s theory of crypto wash trading. Released by Forbes in August 2022 analysis Trading activity on 157 cryptocurrency exchanges. It found that “more than half of all reported trading volumes are likely fake or uneconomical.”World wide Bitcoin (BTC) Trading volume was less than half of what was reported.
How to protect yourself while investing in cryptocurrencies
Investing in cryptocurrencies is an inherently risky business, so there is no way to be completely safe. And if widespread wash trading is spotted on major exchanges, Cuba is right that it could lead to the implosion of another cryptocurrency.
Think of all cryptocurrency trading volume as a grain of salt and don’t use that as a reason to invest. This is especially true if you are thinking of investing in a small cryptocurrency, but it can also be true for larger coins. Do it based on currency quality.
again, Be conservative about how much money you have in cryptocurrencies. There is nothing wrong with making cryptocurrencies part of your investment portfolio. If you want to invest his 5% of your money in cryptocurrencies, that’s fine. Don’t invest money you can’t afford to lose. Also, keep most of your portfolio in low volatility investments such as stocks.
