Get ready for the feds to start charging NFT traders
Securities and Exchange Commission regulators should take action to protect investors from traders who distort the NFT market with manipulative trading – and they probably will soon.
Opinion
Studies show that most people who attempt to wash non-fungible trading tokens (NFTs) are not profitable. But that doesn't stop them from trying, making it a glaring regulatory and enforcement issue for the industry.
In shadow trading, manipulators buy and sell an asset between themselves to make it appear that the asset is in more demand and, therefore, worth more than it otherwise would be. With NFTs, wash trading is quite simple: Imagine that an investor holds $1 million in Ether (ETH). The investor strikes an NFT and proceeds to sell it for all the ETH he owns. The transaction is then on the blockchain for $1 million in ETH. The price of the NFT was set through a fictitious exchange for the benefit of the person who minted the NFT.
Might be tempting to think of this as a 'victimless' crime, as money is unlikely to have changed hands if it was a laundry business , but it's wrong. By rewarding so-called fake high-volume traders with real money, NFT investors risk losing millions to scammers, and legitimate traders can be tricked into paying too much for their investments.
Related: GameFi Developers Could Face Heavy Fines and Difficulties
These fraudulent transactions also drive Gresham's Law (bad money drives out good money) in crypto, driving out legitimate investors and traders as the exchange's reputation is destroyed.
When it comes to NFTs, however, the rules are not so clear cut. These tokens may not be securities, so the same laws and regulations governing trading in securities may not apply to them.
The context of laundry trade lawsThe laundry business has been banned in the United States...
Securities and Exchange Commission regulators should take action to protect investors from traders who distort the NFT market with manipulative trading – and they probably will soon.
Opinion
Studies show that most people who attempt to wash non-fungible trading tokens (NFTs) are not profitable. But that doesn't stop them from trying, making it a glaring regulatory and enforcement issue for the industry.
In shadow trading, manipulators buy and sell an asset between themselves to make it appear that the asset is in more demand and, therefore, worth more than it otherwise would be. With NFTs, wash trading is quite simple: Imagine that an investor holds $1 million in Ether (ETH). The investor strikes an NFT and proceeds to sell it for all the ETH he owns. The transaction is then on the blockchain for $1 million in ETH. The price of the NFT was set through a fictitious exchange for the benefit of the person who minted the NFT.
Might be tempting to think of this as a 'victimless' crime, as money is unlikely to have changed hands if it was a laundry business , but it's wrong. By rewarding so-called fake high-volume traders with real money, NFT investors risk losing millions to scammers, and legitimate traders can be tricked into paying too much for their investments.
Related: GameFi Developers Could Face Heavy Fines and Difficulties
These fraudulent transactions also drive Gresham's Law (bad money drives out good money) in crypto, driving out legitimate investors and traders as the exchange's reputation is destroyed.
When it comes to NFTs, however, the rules are not so clear cut. These tokens may not be securities, so the same laws and regulations governing trading in securities may not apply to them.
The context of laundry trade lawsThe laundry business has been banned in the United States...
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