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Investing.com – As the year 2022 has been marked by several scandals in the cryptocurrency industry, the most resounding being the collapse of the stablecoin TerraUSD and the bankruptcy of the crypto platform FTX, investors are wondering if the 2023 will be the year of the rebound, or if other negative surprises are to be expected.
For billionaire and cryptocurrency investor Mark Cuban, the question is already settled, and it comes down to when the next crypto scandal will take place.
The next crypto scandal will be related to wash trading according to Mark Cuban
However, according to him, there is a good chance that the next shock wave on the cryptocurrency market will be linked to the implosion of so-called “wash trades” operations on centralized crypto platforms.
“I think the next possible implosion is the discovery and removal of wash trades on central exchanges,” Mark Cuban told TheStreet in an email interview.
He added, “There are supposedly tens of millions of dollars in transactions and liquidity for tokens that are very lightly used. I don’t see how they can be so liquid.”
Cuban, however, said this was just a prediction, adding “I have no details to offer to back up my guess.”
However, according to a report published in December by the National Bureau of Economic Research (NBER), up to 70% of the volume of unregulated exchanges are fictitious transactions, an estimate obtained on the basis of statistical and behavioral models for determine which transactions were legitimate or not.
Additionally, Forbes conducted a survey of 157 centralized crypto exchanges last year which estimated that more than half of trading volumes on the were “fake”.
What is wash trading?
Remember that a wash trade consists of creating an artificial interest around a financial product, in this case cryptocurrencies, to make a profit. Also known as “pump and dump”, this strategy is very popular among insiders in the cryptocurrency industry, and is obviously illegal.
The principle is that insiders simultaneously buy and sell designated cryptocurrencies, creating artificial trading volumes, while encouraging positive comments on social networks. And once the cryptocurrency has risen, insiders cash in their profits, causing the targeted crypto(s) to crash.
“Wash Trading (is) entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s position in the market “, underlines for its part the American Commodity Futures Trading Commission.
An “implosion” of wash trades would therefore have positive impacts, by cleaning up the cryptocurrency market. But it could also mean a drop in revenue for exchanges, whose earnings depend on commissions on crypto trading operations. This could also lead to the disappearance of more or less important altcoins, with the risk of cascading effects and contagion.