Billionair Mark Cuban He believes that laundering trading could be the next thing to shake up the cryptocurrency industry.
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“I think the next potential crash is the detection and removal of laundered trades on centralized exchanges,” the cryptocurrency investor told TheStreet.
Washing trading is a technique of market manipulation where a trader buys and sells the same financial asset multiple times to generate false volume and show that there is a high demand for the asset.
This artificially inflated demand can induce other traders to invest real money in the asset.
Since higher demand usually leads to higher prices, traders can use this process as a sort of “pump and dump” scheme: when the price is as high as a trader thinks it can go, they can cash out and leave other investors with an asset that loses value.
While wash trading is illegal in traditional financial markets, it is It is difficult to clamp down on activity in the crypto space.
“Putting an exact number in cryptocurrency trading is much more difficult than it is in traditional finance because the markets are so different and decentralized,” says Chen Arad, chief operating officer of Solidus Labs, a security and risk monitoring firm. the shop.
For example, bitcoin is traded on thousands of centralized, decentralized, regulated and unregulated platforms.
This could create new opportunities for criminals to collude in exchanges and manipulate the market with new and sophisticated original cryptographic methods, Arad told CNBC Make It.
Up to this point, more than 50% of reported daily bitcoin transactions are likely to be fake, according to a recent Forbes analysis of 157 cryptocurrency exchanges worldwide.
For the study, Forbes analyzed data from four crypto media companies — CoinGecko, Nomics, Messari, and CoinMarketCap — as well as several cryptocurrency exchanges.
While Cuban cautioned that he didn’t have any details to back up his predictions, he did point out that there are reportedly tens of millions of dollars worth of deals for digital tokens that have very little interest and he doesn’t see how these types of assets can be easily converted into cash.
Arad agrees that laundered trading is a major problem in the cryptocurrency market.
“Without preventing laundering trading, cryptocurrencies will never reach their potential to enable safer and more accessible financial services,” he says.
Unfortunately, determining the wash trade yourself is not an easy task. Identifying market manipulation requires specialized technology and deep technical, financial and cryptographic knowledge, says Arad.
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But it is important to note that the cryptocurrency industry has made a concerted effort to combat the problem over the years, he says.
“Most regulated exchanges have compliance and oversight teams that are larger than traditional finance and are led by veterans,” says Arad.
“On exchanges that use market surveillance, the wash trade rate is often just a fraction of one percent.”
The best thing retail investors can do to protect themselves from falling into a laundered trading system is to be sure Trust only regulated crypto platforms which uses market surveillance technology to detect suspicious business activity, he says.