3 months ago 2 min read

Why this Billionaire Thinks Illegal Practice will Cause Next Crypto Crisis: Wash Trading

mark cuban-wash trading
Table of Contents

Billionaire Mark Cuban has discussed wash trading as a potential catalyst for the next bitcoin crisis.

Cuban, a well-known cryptocurrency investor, was unreserved in his prediction that 2023 will be a year characterized by scandals and frauds that will decimate the digital currency sector.

In fact, the business mogul claimed that the question of whether or not this would occur has been replaced by one of when another market-crushing event will take place. Unfortunately, "wash trades" will put centralized exchanges in the spotlight this time.

Owner of the Dallas Mavericks of the NBA said:

“I think the next possible implosion is the discovery and removal of wash trades on centralized exchanges. There are supposedly tens of millions of dollars in trades and liquidity for tokens that they have very little utilization. I don’t see how they can be that liquid.”

What is the process of Wash Trading?

Wash trading is categorized as a particular sort of pump-and-dump scam that entails generating "artificial interest" for a financial asset like a cryptocurrency.

During the process, a trader will purposefully buy and sell a significant amount of that particular cryptocurrency and then use the power of social media to convince the public that there is a high demand for that particular digital token.

Those that engage in this type of illicit activity are able to conduct deals with little to no risk and without shifting their market position.

Cuban predicts that this kind of plan will lead to the next collapse of the cryptocurrency market, although the billionaire acknowledged that he currently has any concrete data to back up this claim.

An Awful 2022 For Crypto

In May 2022, after the collapse of Luna and UST (TerraUSD), the cryptocurrency market, still reeling from the bearish anguish that had plagued most crypto assets, including Bitcoin, lost billions in valuation.

This incident triggered off a series of events that left businesses like Three Arrows Capital (3AC) unable to fulfill its obligations to Voyager Digital and Celsius Network, two crypto lenders.

Due to the liquidation of 3AC, the two lenders were forced to file for Chapter 11 bankruptcy, sharing the same destiny as the FTX cryptocurrency exchange in November of last year.

These events sent shockwaves through the larger crypto market, which caused substantial price drops in several digital assets. Many digital currencies haven't yet fully recovered from the damages these instances caused them.

Attempts by bitcoin exchanges to artificially increase their trade volume through wash trading, meanwhile, have long been a major source of worry.

The Securities and Exchange Commission forbids wash trading as a manipulative strategy, and authorities throughout the globe are cracking down more and more on cryptocurrency wash trading.

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