NFTs seem to be making headlines all the time the last few months either by mysteriously disappearing or by showing up as spam.
It’s no surprise to see that they are in the news again this time for having their prices fraudulently driven up, according to a report by crypto analysis firm Chainanalysis. These ever-emerging scandals beg the question: is the NFT space a safe one?
NFT prices soaring illegally?
“As is the case with any new technology, NFTs offer potential for abuse,” says the Chainalysis report and names one particular type of fraud: “Wash trading to artificially increase the value of NFTs.”
Wash trading is the practice of traders buying their own NFTs with different wallets to make it seem like they’re skyrocketing in value. It should be illegal but the NFT space is not advanced enough to be properly regulated.
“There aren’t the regulations that are in place that are in the traditional finance sector,” Jarod Koopman, director of cybercrime investigations for the IRS, told NBC. Instead, to fight this type of online crime, Koopman said the IRS is focused on cases where individuals are “purposely manipulating the market to inflate it, to take advantage of other investors on the other side.”
Difficult to catch
Chainanalysis reported that one of the most prolific NFT wash traders made 830 sales to addresses that they had self-financed but only got away with a mere $8,000. The firm did, however, note that it was particularly difficult to track and identify those who were the best at wash trading. Those tricky scammers were exceptionally good at hiding their activities and were also likely the ones profiting the most from the practice. That’s why Kimberly Grauer, director of research at Chainalysis, told NBC that they only” built a very, very, very conservative estimate of what might be NFT-related wash trading.” The real numbers may indeed be much higher.
Those considering investing in the NFT space may want to think about how early it is to do so. The space has very little regulation and transparency making it a hotbed for scammers and fraudsters. Is that really an area you want to put your hard-earned money in?