Mark Cuban Says This Could Cause Crypto’s Next Implosion

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The owner of Dallas Mavericks is wary of the trading volumes of certain cryptocurrencies.

Key points

  • Mark Cuban thinks the washout trade could cause the next crypto implosion.
  • Wash trading is when a single person buys and sells an asset to manipulate the market with artificial trading volume.
  • An analysis has revealed that more than half of crypto trading volume is likely fake or uneconomical.

The cryptocurrency has been plagued by high-profile crashes in 2022. One of the biggest cryptocurrencies, Terra (LUNA) crashed in May. And one of the biggest crypto exchanges, FTX, filed for bankruptcy in November. Founder Sam Bankman-Fried was accused of fraud and money laundering.

The hope for crypto investors is that there will be no incidents like these in 2023. But billionaire Mark Cuban, himself a longtime crypto investor, thinks another could happen. profile on the horizon. He believes the next possible crypto implosion “is the discovery and removal of wash trades on central exchanges,” he said in an interview with TheStreet.

Cuban clarified that he had no details to back up his guess. However, there is evidence that this is a serious problem. If you invest in cryptocurrencyit is important to be aware of what is going on and what to watch out for.

What is wash trading?

Wash trading is an illegal activity that involves a single person buying and selling the same asset to manipulate the market. By doing so, the owner of an asset can increase their trading volume and mislead potential investors. It was originally used with the stock Exchangebut it can also be used to manipulate other markets, such as cryptocurrency.

For an example of how this works, let’s say you own $1 million worth of a crypto token. You sell it to another crypto wallet under your control. You still have the same amount of cryptocurrency minus transaction fees. And your trade added $1 million in artificial trade volume.

Fraudsters often use wash crafts as part of cryptocurrency pump and dump scams. They will buy and sell their own tokens to give the impression that a cryptocurrency is heavily traded. Then they will promote the cryptocurrency on social media. Once they convince people to invest and raise the price, they sell their tokens at a profit. The price then drops and all these new investors end up losing money.

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Crypto likely has a washout trading problem

Due to how cryptocurrency works, the market is particularly vulnerable to wash trading. Crypto wallets are not linked to the identity of the owner. Some crypto exchanges allow you to trade by connecting a wallet, with no identity verification required. This makes it very easy for a scammer to set up multiple wallets and move their own cryptocurrency back and forth.

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

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

How to protect yourself by investing in cryptocurrency

Investing in cryptocurrencies is an inherently risky business, so there is no way to be completely safe. And if there is a discovery of a widespread washout trade on major exchanges, Cuban is right that it could lead to another crypto implosion.

Take all crypto trading volume with a grain of salt and don’t use it as a reason to invest. This is especially true if you plan to invest in smaller cryptocurrencies, but it can also be the case with larger coins. Base your investment decisions on the quality of the cryptocurrency, not the quantity expected to be traded.

Also, be careful about how much money you have in crypto. There is nothing wrong with making cryptocurrency a small part of your investment portfolio. If you want to put 5% of your money in crypto, that’s fine. Just don’t invest money you can’t afford to lose, and keep most of your portfolio in less volatile investments, such as stocks.

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