According to a report released this week by blockchain data firm Chainalysis, the NFT marketplace is rife with people buying their own NFTs in order to drive up prices.
The act of buying and selling security in order to deceive the market, known as “wash trading,” was once commonplace on Wall Street and has been illegal for nearly a century.
However, the vast, unregulated NFT marketplace has proven to be a goldmine for scammers.
The report tracked at least 25 instances of the same traders selling the same NFTs back and forth, indicating wash trading. It identified a group of 110 alleged NFT wash traders who profited from this practice to the tune of $8.9 million.
In the second half of 2021, researchers discovered significant evidence of money laundering in the NFT marketplace.
According to the report, the value sent to NFT marketplaces by addresses associated with scams increased significantly in the third quarter of 2021, totaling more than $1 million in cryptocurrency.
In the fourth quarter of 2021, such illicit addresses generated approximately $1.4 million in sales.
“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.
Non-fungible tokens, or NFTs, are a new asset class of digital tokens that exist on the blockchain and are primarily purchased with Ethereum, a cryptocurrency. Crypto collectibles can range from a two-dimensional image to a GIF to a song.
The NFT market is estimated to be worth between $7 billion and $44.2 billion. The digital assets skyrocketed in popularity in 2021, and celebrities such as Mark Cuban, Tom Brady, and Reese Witherspoon have embraced them.
Skeptics have questioned the legitimacy and necessity of NFTs as interest in the still-relatively-new space has grown. High-profile NFT sales, such as last year’s $69 million purchase of artist Beeple’s collection, have become more common.
However, because digital tokens are not securities, they are not subject to the same US laws and regulations that govern stocks, for example. In recent months, there have been numerous scams in the NFT space, including counterfeit NFTs and money laundering.