Billionaire Mark Cuban believes the next cryptocurrency crash could be due to wash trading.
“There are probably tens of millions of dollars in trading and liquidity for a little-used token,” he told The Street.
Wash trading is a type of pump-and-dump scheme to artificially interest crypto tokens.
After the collapse of FTX rocked the crypto sector, billionaire Mark Cuban believes the next meltdown could stem from so-called wash trading schemes.
“I think the next possible implosion will be the discovery and removal of wash trades on central exchanges,” he told The Street. It’s probably tens of millions of dollars and I don’t see how it could be so liquid.”
Cuban added, “I have no concrete information to support my speculation,” and did not elaborate further in an email exchange with The Street.
Wash trading is a kind of pump-and-dump scheme that involves creating an artificial profit in a financial asset (in this case cryptocurrencies).
Traders buy large amounts of a particular cryptocurrency, sell the same tokens to promote large trading volumes, and then turn to social media to create a misleading demand picture.
According to the Commodity Futures Trading Commission, the scheme essentially allows those behind the scheme to trade without taking any risks or changing their position in the market.
The Securities and Exchange Commission has ordered FTX founder Sam Bankman-Fried to buy his cryptocurrency hedge fund, Alameda Research, to artificially inflate the value of the tokens it borrows. said.
With so many cryptocurrencies out there, tokens are particularly susceptible to wash trading. A December report on the practice by the National Bureau of Economic Research found that out of 29 unregulated cryptocurrency exchanges worldwide, a staggering 70% of trades were illegal wash trades.
The report also states that wash trading accounts for nearly 80% of total trading volume on 12 “Tier 2 exchanges.”
“These estimates represent over 4.5 trillion percent wash trading in the spot market and over $1.5 trillion in the derivatives market in the first quarter of 2020 alone.”
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