According to the billionaire investor and Dallas Mavericks owner, the majority of centralised exchange volume is fake.
According to billionaire Dallas Mavericks owner and crypto investor Mark Cuban, the next crypto “implosion” will be caused by crypto token wash trading on centralised exchanges.
Following the numerous fiascos that rocked 2022, the billionaire investor predicted in an interview with The Street on Jan. 5 that 2023 will not be short of crypto scandals.
Cuban, who has invested in several crypto and Web3 startups, believes that “the discovery and removal of wash trades on central exchanges” will be the next big thing in the industry.
“There are allegedly tens of millions of dollars in trades and liquidity for tokens with very little utilisation,” he said, adding, “I don’t see how they can be that liquid.”
Wash trading, which is illegal under US law, is the practise of a trader or bot buying and selling the same cryptocurrency asset in order to feed misleading information to the market.
The goal is to artificially inflate volumes so that retail traders will jump on board and drive up prices. It is essentially a pump-and-dump scheme.
Cuban stated that he was only making a guess and that “I don’t have any specifics to offer to support my guess.”
According to a December report by the National Bureau of Economic Research, wash trading accounts for up to 70% of the volume on unregulated exchanges (NBER).
The researchers used statistical and behavioural patterns to determine which transactions were genuine and which were fraudulent.
Furthermore, a Forbes 2022 study of 157 centralised exchanges discovered that more than half of Bitcoin trade volumes were fake.
However, wash trading is not limited to centralised exchanges. Mati Greenspan, CEO of Quantum Economics and former eToro senior market analyst, stated on January 5 that 42% of all NFT volume is wash traded.
He went on to say that wash trading is also used to harvest tax losses by making it appear (to the taxman) that there has been a larger loss than there has been.