What Is Wash Trading?
Also known as: Wash Trade, Fake Volume, Artificial Volume
In short
Wash trading is when the same person or parties acting together buy and sell an asset among themselves to create fake trading volume and artificial price movement. It is a form of market manipulation that misleads other investors.
In wash trading, no real change of ownership takes place; the asset changes hands between accounts under the control of the same person. The aim is to create the impression that a token or NFT is attracting more interest than it actually is. High volume can push an asset up in ranking lists, help it meet listing criteria or convince investors that liquidity is deep. Various studies have also alleged that some crypto exchanges inflate their own volume to rise in rankings.
The problem is also widespread in NFT marketplaces. A collector can make a collection's value look artificially high by selling an NFT several times at high prices between two wallets under their control. On some platforms that distribute token rewards based on trading volume, users have traded with themselves just to collect rewards.
In traditional capital markets, wash trading is prohibited, and regulations for the crypto market are increasingly addressing market manipulation more comprehensively. On-chain analysis helps uncover such activity by detecting repeated transactions between wallets funded from the same source. Volume data should not be treated as a reliable indicator on its own.
Last updated: · This content is for information purposes only and is not investment advice.