Wash Trading on Ethereum Is Down 72% In the Last 4 Months

Wash trading is a type of market manipulation in which a trader buys and sells a security to create the appearance of activity or demand in the market. In the case of non-fungible tokens (NFTs), wash trading would involve buying and selling the same NFT multiple times to artificially inflate its price or trading volume.

While it had become prevalent on the Ethereum blockchain, recent months have seen a noticeable decrease in its activity. CryptoMonday.de has presented data showing that wash trading volumes on blockchain had dropped by 72% in the last four months. The site reports that the vice’s volume fell from 90.94K at the end of August to 25.47K by November 2022.

A Step in the Right Direction

CryptoMonday’s CEO, Jonathan Merry, recently weighed in on the declining wash trading levels on Ethereum. He holds that the act is theft by proxy, and news of its decline is a good sign for the platform. He insists that ethical market practices will encourage legitimate investments and build stakeholder confidence in the NFT market.

A reduction in wash trading can benefit NFTs and the wider Ethereum ecosystem. It makes markets transparent and levels the playing field for investors trying to capitalize on gains from NFT speculation and sales legitimately. A reduction in fraud should lead to greater liquidity and better price discovery, which will benefit NFT holders who want to maximize investment returns.

CryptoMonday’s CEO, Jonathan Merry

NFT wash trading can significantly impact the market by creating an inaccurate or misleading picture of its state, which can lead to poor investment decisions by other traders or investors. Additionally, it can artificially inflate prices leading to financial losses for unwitting buyers. Finally, it can damage the market’s integrity and undermine trust in its fairness and reliability. Therefore the significant decrease in the activity is a positive for both the market and investors.

So What Has Caused This Dramatic Drop?

There are various reasons why the volume of NFT wash trades has reduced over time. To begin with, regulatory authorities worldwide have heightened the clamping down on fraudulent activities within the crypto space. Many traders have become wary of participating in this form of manipulation for fear of getting into legal trouble.

The second factor is likely related to efforts made by exchanges to crack down on wash trading activities. Over the past year, we’ve seen some NFT platforms like Nansen introduce filters to flag suspicious activities such as repeated transactions and large volumes being moved without any clear reason.

Finally, the rising popularity of cryptocurrencies has led to increased public awareness about market manipulation practices such as wash trading. That has increased their ability to spot and avoid pitfalls in NFT trading.

That being said, there is still much to do in eliminating NFT wash trading on Ethereum. While regulation plays an essential role in preventing its occurrence, it is ultimately up to individual investors to remain vigilant when investing in digital assets so they can avoid any potential washing activities or other scams.