The owner of the National Basketball Association (NBA) team Dallas Mavericks and also Shark Tank celebrity Mark Cuban have warned that “the discovery and removal of wash trades” on centralized exchanges could cause the next cryptocurrency crash. The remarks were made in response to Futures Exchange (FTX), a cryptocurrency exchange platform that collapsed in early November 2022, resulting in the loss of billions of dollars in client funds.
2023 crypto crash tied to wash trading
According to Cuban, wash trading may be the reason why cryptocurrencies collapse in the future. In a recent interview with The Street, Cuban was unreserved in his prediction that 2023 will be a year characterized by scandals and frauds that will utterly destroy the digital currency sector. He said:
“I think the next possible implosion is the discovery and removal of wash trades on central exchanges.” There are supposedly tens of millions of dollars in trades and liquidity for tokens that have very little utilization. “I don’t see how they can be that liquid.”
Cuban, who is also a well-known cryptocurrency investor, claimed that it was not a question of whether this will occur or not but rather one of when it will occur. Unfortunately, wash trades will put centralized exchanges in the spotlight this time.
However, Cuban warned that “I don’t have any specifics to offer to support my guess.”
The Wash Trading Scheme
Wash trading is a specific kind of pump-and-dump scheme that has spread in the cryptocurrency market. This scheme entails feigning interest in a financial product, in this case a cryptocurrency token or coin, in order to make money.
The strategy behind the wash trading scheme involves a trader or a scammer buying and selling a significant amount of a certain cryptocurrency, inflating the trading volume of the cryptocurrency by using the influence of social media to make good remarks about the token and convince the general public that there is a big demand for that token. thereby causing the token’s price to rise as a result of increased interest in it. And at the height of the demand, the trader then sells off their holdings.
The United States Commodity Futures Trading Commission also notes that those who engage in this illegal activity are able to carry out trades without accruing any market risk or shifting their market position. Having acknowledged that he currently has no concrete evidence to back up his claims, Cuban is convinced that this kind of plan will lead to the next collapse of the cryptocurrency market.
Efforts by bitcoin exchanges to artificially increase their volume of trade through “wash trading” have been a major source of worry for a long time. As one of the deceptive tactics banned by the Securities and Exchange Commission (SEC), regulators all over the world are successively taking actions against cryptocurrency-related wash trading.
In September, during an interview with Paddy Hirsch and Wailin Wong, Kim Grauer, the director of research at blockchain analytics firm Chainalysis, mentioned that wash trading in the crypto sector was “a legal gray area that we’re all trying to figure out how this should be regulated and what’s illegal.”
Mark Cuban believes bitcoin isn’t left out
Bitcoin itself isn’t exempt from the wash trading scheme. According to a Forbes magazine study carried out on centralized exchanges in 2022, the magazine stated that “more than half of all reported trading volume is likely to be fake or non-economic.”
This casts doubt on the information surrounding the trade volumes of less-known cryptocurrencies. With the occurrences of 2022 happening in a chain reaction manner, the price of Bitcoin has plunged to under $17,000, a level not encountered in more than 2 years.
Cuban believes that bitcoin is an excellent investment, and he disclosed that he makes investments in cryptocurrencies because he believes smart contracts will “have a significant impact in creating valuable applications.”