NFT sales hit $7 billion all-time-high in January, but it may just be a bubble waiting to pop

    Since the New Year, the cryptocurrency market has been in the red, but the marketplace for non-fungible tokens (NFTs) has already been prospering – at least on paper. NFT trading volume increased nearly thrice in January, to $6.86 billion from $2.67 billion in December, according to data compiled by The Block Research.

    The majority of the credit for the increase goes to LooksRare, a fresh NFT platform that is being marketed as a “decentralized” rival to OpenSea, the market leader in terms of all-time value. This isn’t to imply that OpenSea didn’t do well. It really increased its trade worth by a factor of two.

    While the reduction in the price of cryptocurrencies, particularly Ethereum, made NFTs more affordable, analysts believe that at least some of the increase is artificial. The massive trade value exhibited on LooksRare could just be the consequence of NFT owners trading digital art amongst themselves to artificially inflate the price – a process known as ‘wash trading.’

    Wash trading makes a comeback

    Within the first 24 hours of coming live, LooksRare hauled in $100 million in NFT sales. Many suspected even back then that the huge trade quantities were a stack of cards that’d fall apart once the enthusiasm wore off.

    LooksRare had the good fortune to start at a time while OpenSea was under criticism for allowing a bug to be exploited, allowing hackers to buy NFTs for less than their market worth.

    However, the concept of ‘wash trading’ is not new. In 2017, the Securities and Exchange Board of India (SEBI) issued a regulation to combat wash trading, also known as self-trading. This follows the Ketan Parekh Scam, in which shell firms were utilized to trade the shares of ten low-profile stocks in order to artificially raise their price.

    Wash trading with NFTs – where is the profit?

    Wash trading is defined as when a supplier buys their own goods to create false demand and manipulate the price of the commodity to increase higher than it would otherwise. Such behavior disrupts the market and is illegal in the majority of countries. However, because the cryptocurrency market is not as tightly controlled and monitored as the entire financial system, some people are able to get away with it.

    At the end of January 2022, the NFT market LooksRare reported trade volumes of $2.25 billion. The rapid increase in just twenty days, as well as their typical trade volume per deal of $415,000, is remarkable. Since the day LooksRare was introduced, Google Search Trends reveal a significant increase in interest in NFT from nations such as Russia, Turkey, and Ukraine.

    Wash trading is even more appealing to traders who can carry it off because LooksRare is structured as a community-owned platform that distributes earnings with dealers. Wash trading would be unprofitable, according to the LooksRare marketplace documents, due to NFT royalties, trading platform expenses, and crypto gas fees. However, according to CoinTelegraph, a few major wash traders have found a way to avoid paying licensing fees by using NFTs.

    The ‘wash traders’ profit from LooksRare’s ‘trading incentives,’ with the largest earning the most LOOKS, the native coin utilized on LooksRare. They can then exchange their LOOKS tokens for Ether tokens, which can be utilized throughout the crypto world.

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