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Over 33% of NFT volume is wash trading: bitsCrunch CEO interview

NFTs were undoubtedly the hottest topic of late 2021 and early 2022. Pushed towards mainstream acceptance by projects like Bored Ape Yacht Club, Azuki, Okay Bears and others, NFTs have boomed.

When the overall market went into a significant decline and the price of Bitcoin lost almost 70% of its value within a few months, non-fungible tokens also felt the pressure. Valuations crumbled and blue-chip projects like BAYC saw their floor prices plummet.

Amidst all this, other problems also plague the burgeoning industry – the trade in detergents appears to be widespread, while copycat projects are mushrooming. In this podcast, we join Vijay Pravin – CEO and Founder of NFT analytics provider bitsCrunch – to discuss some of the growth issues facing the industry and possible solutions for the future.

Over a third of NFT trading volume is wash traded

One of the core problems of the NFT industry has been wash trading for quite some time. For those who don’t know, wash trading is the process of artificially inflating the price of an asset by simulating trading activity. Let’s look at an example.

Imagine John buys an NFT for 1 ETH. However, he wants to make it appear as if this is an expensive collector’s item that he got hold of at a bargain price. To do this, he creates another MetaMaskWallet and “buy” it for 10 ETH. Now you need to remember that NFT sales take place on-chain and the data is recorded and publicly verifiable. Because of this, the trading history for each individual NFT is fully visible on OpenSea (which is also true for most marketplaces). That being said, anyone reviewing this NFT will now see that it was bought for 1 ETH and then sold for 10 ETH – creating the illusion that it is an expensive piece. Someone may then decide to spend more than 10 ETH on it thinking they are buying something expensive when in reality John artificially inflated the price by selling it to himself.

This problem can be extended to suit different purposes. For example, founders can artificially inflate the trading volume of their collections to keep them trending on different platforms.

On that subject, Pravin said his company pulled the numbers and told us that over a third of all NFT trading volume across all markets is subject to wash trading.

The example above was particularly simple. Pravin revealed that they have identified over 12 patterns that wash traders use to achieve their malicious ends.

Are NFTs correlated with the broader crypto market?

The market for cryptocurrencies has been choppy for the past few months, and the decline escalated this week as bitcoin’s price touched near $20,000 – a previous one all-time high from 2017 and a critical level.

As a result, NFT prices also fell. Now here are some important things to consider. Non-fungible tokens are typically denominated in the native cryptocurrency of the network they run on. Most typically – this is either ETH or SOL.

Logically, if the price of ETH or SOL falls, the USD value of the NFT will also fall, but it is important to see if their ETH or SOL denomination falls as well. So far – that seems to be the case.

For example, the minimum price of Bored Ape NFTs is around 86 ETH at the time of writing and was over 130 ETH just a few months ago. According to Pravin, there is a correlation between the prices of NFTs and the broader cryptocurrency market, particularly for some collections.

As an NFT analysis and forensics provider, we looked at some of the correlations. We’re seeing some of this, especially with collections like MAYC (Mutant Ape Yacht Club) – we’re seeing them correlated with ETH and other crypto assets.

On the other hand, there are collections like ArtBlocks, where anyone can mint and which have over 200,000 owners. They are not correlated with Ethereum and other general coins.

The NFT Space is like a baby

As mentioned above, there are a large number of projects in the NFT space that just replicate successful collections with tiny changes or revised narratives. There are also many projects with questionable optics.

An example from the past few weeks is Goblintown – a collection of downright ugly goblins (as if there were pretty goblins) in clear reference to the bear market as in We’re Goblin Town. The collection was free to mint and at one point reached a whopping 9 ETH in terms of the reserve price. And this is far from the first such collection to have had a massive streak.

Pravin believes this is because the NFT market is still young and the industry will rid itself of “garbage projects” over time.

I would liken the NFT room to a baby still crawling and trying to climb up. I would expect some of the junk projects to be lost in this market situation.

It’s good and bad in a way – bad for those who put their heart and soul into a project, but at the same time it also cleans up collections that aren’t ready to stay for the long haul.

On the other hand, he believes projects like BAYC and CryptoPunks are unlikely to go away and that they’ve brought a lot of value to the space.

Pravin also shared his thoughts on Web3, VC involvement and how he thinks the market will evolve in the future. Feel free to watch our video podcast to find out how he thinks NFTs will look like in the years to come.

Source: Crypto News Deutsch

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