Mark Cuban Says This Could Cause the Next Crypto Implosion
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Key points
Mark Cuban believes wash trading could cause the next crypto implosion.
Wash trading is when a single person buys and sells an asset to manipulate the market with artificial trading volume.
One analysis found that over half of crypto trading volume is likely fake or non-economic.
Cryptocurrency was plagued by some high-profile collapses in 2022. One of the largest cryptocurrencies, Terra (LUNA) crashed in May. And one of the largest crypto exchanges, FTX, filed for bankruptcy in November. Founder Sam Bankman-Fried has been charged with fraud and money laundering.
The hope for crypto investors is that there aren't any incidents like these in 2023. But billionaire Mark Cuban, a longtime crypto investor himself, thinks another could be on the horizon. He believes the next possible crypto implosion "is the discovery and removal of wash trades on central exchanges," he said in an interview with TheStreet.
Cuban clarified that he doesn't have specifics to support his guess. However, there's evidence this is a serious issue. If you invest in cryptocurrency, it's important to be aware of what's going on and what to look out for.
What is wash trading?
Wash trading is an illegal activity that involves a single person buying and selling the same asset to manipulate the market. In doing so, the owner of an asset can pump up its trading volume and mislead potential investors. It was originally used with the stock market, but it can also be used to manipulate other markets, like cryptocurrency.
For an example of how this works, let's say you own $1 million worth of a crypto token. You sell it to another crypto wallet in your control. You still have the same amount of cryptocurrency, minus transaction fees. And your transaction added $1 million in artificial trading volume.
Fraudsters often use wash trades as part of pump-and-dump cryptocurrency scams. They'll buy and sell their own tokens to give the appearance that a cryptocurrency is heavily traded. Then, they'll promote the cryptocurrency on social media. Once they've convinced people to invest and driven up the price, they sell their tokens at a profit. The price then plummets, and all those new investors end up losing money.
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