Mark Cuban says this could trigger the next crypto implosion

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The Dallas Mavericks owner is skeptical about the trading volume of some cryptocurrencies.

Cryptocurrencies suffered a high-profile collapse in 2022. His one of the biggest cryptocurrencies, Terra (LUNA), crashed in his May. And one of the largest cryptocurrency exchanges, FTX, filed for bankruptcy in November. Founder Sam Bankman-Fried was indicted on fraud and money laundering charges.

The hope for cryptocurrency investors is that in 2023 no such incident will occur. He believes the next possible crypto implosion is “the discovery and deletion of wash his trades on central exchanges,” he said in his interview with TheStreet. .

Cuban has clarified that he has no details to back up his speculation. When investing in cryptocurrencies, it’s important to be aware of what’s going on and what you should be aware of.

What is wash trade?

Wash trading is the illegal practice of one person buying and selling the same asset to manipulate the market. By doing so, asset owners may increase trading volume and mislead potential investors. Originally used in the stock market, it can also be used to manipulate other markets such as cryptocurrencies.

As an example of how this works, let’s say you own $1 million worth of crypto tokens. You sell it to another crypto wallet under your control. You can continue to use the same amount of cryptocurrency minus transaction fees. And your trade added $1 million in artificial trading volume.

Scammers often use wash trades as part of pump-and-dump cryptocurrency scams. They buy and sell their own tokens to make it look like cryptocurrencies are traded frequently. Then promote your cryptocurrency on social media. Once you’ve convinced people to invest and pushed the price up, sell your tokens for a profit. After that, the price will plummet and all new investors will suffer losses.

Cryptocurrencies likely have wash trading issues

Markets are particularly vulnerable to wash trading due to how cryptocurrencies work. Crypto wallets are not tied to the owner’s identity. Some cryptocurrency exchanges allow you to trade by connecting your wallet without requiring identity verification. This makes it very easy for scammers to set up multiple wallets and exchange their own cryptocurrencies.

Non-fungible tokens (NFTs) have this same problem. If you own an NFT and want to make it more valuable, you can buy it yourself at a high price.

Recent data supports Mark Cuban’s theory on crypto wash trading. In August 2022, Forbes released an analysis of trading activity on 157 cryptocurrency exchanges. It found that “more than half of all reported trading volumes are likely fake or uneconomical.” Global Bitcoin (BTC) trading volume was estimated to be less than half of the reported volume.

How to protect yourself while investing in cryptocurrencies

Investing in cryptocurrencies is an inherently risky business, so there is no way to be completely safe. And Cuba is right that if widespread wash trading is spotted on major exchanges, it could lead to implosion of another cryptocurrency.

Think of all cryptocurrency trading volume as a grain of salt and don’t use that as a reason to invest. This is especially true if you are thinking of investing in a small cryptocurrency, but it can also be true for larger coins. Do it based on currency quality.

again, Be conservative about how much money you have in cryptocurrencies. There is nothing wrong with making cryptocurrencies part of your investment portfolio. If you want to invest his 5% of your money in cryptocurrencies, that’s fine. Don’t invest money you can’t afford to lose. Also, keep most of your portfolio in low volatility investments such as stocks.