Billionaire Mark Cuban Warns Next Crypto Implosion Could Come From ‘Washing Trades’, Report Says

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Mark Cuban.John Laparski/Getty Images

Billionaire Mark Cuban thinks the next crypto crash could come from washout deals.

“There are supposedly tens of millions of dollars in transactions and cash for tokens that have very little use,” he told The Street.

Wash transactions are a form of pump and dump system to artificially generate interest around a crypto token.

After the collapse of FTX rocked the crypto sector, billionaire Mark Cuban thinks the next slump may come from so-called wash trade schemes.

“I think the next possible implosion is the discovery and removal of washout trades on central exchanges,” he told The Street. “There are supposedly tens of millions of dollars in transactions and cash for tokens that have very little use. I don’t see how they can be so liquid.”

Cuban added that he had “no details to offer to support my guess,” and did not elaborate further in email exchanges with The Street.

Wash trades are a type of pump and dump system that involves the creation of artificial interest in a financial asset, in this case a cryptocurrency.

A trader will buy massive volumes of a specific crypto and sell the same token to tout large trading volumes before taking to social media to create a misleading picture of demand.

According to the Commodity Futures Trading Commission, the scheme essentially allows those behind the scheme to transact without taking on risk or changing their position in the market.

The Securities and Exchange Commission said FTX founder Sam Bankman-Fried ordered his crypto hedge fund Alameda Research to buy crypto and artificially inflate the value of a token he was borrowing against.

Because there are so many cryptos out there, tokens are particularly prone to washout trades. A December report on the practice from the National Bureau of Economic Research said that out of 29 unregulated cryptocurrency exchanges around the world, 70% of transactions were illicit washouts.

The report also states that in 12 “Tier 2 exchanges”, washing exchanges accounted for almost 80% of the total trading volume.

“These estimates translate to over 4.5 trillion percent wash trades in spot markets and over $1.5 trillion in derivatives markets in the first quarter of 2020 alone.”

Read the original article on Business Insider

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