Chainalysis found ‘significant’ volumes of fictitious trading in the NFT market

Analytics firm Chainalysis reported ‘significant’ volumes of fictitious trading in the NFT market and inflows of illicit assets for money laundering.

In the latest preview of our 2022 Crypto Crime Report, we look at #NFTs and crime. Learn how wash trading and money laundering are picking up steam in the NFT space. https://t.co/pJrh6C0tyX

— Chainalysis (@chainalysis) February 2, 2022

Wash trading (wash trading) is commonly used on markets to create a false sense of activity. In the NFT space, criminals seek to give users an unwarranted impression that the asset is liquid and rising in price, the firm’s experts noted.

They tracked the illicit practice by examining sales between ‘self-funded’ addresses — funds for purchases moving from one to another or from a related source.

The analysis uncovered hundreds of fraudulent transactions. The most prolific fictitious NFT trader made 830 sales.

In total, the researchers identified 262 users who sold NFT to self-funded addresses more than 25 times. This threshold gave analysts greater confidence in characterising such trades as fictitious trading.

Most of these traders, including the leader in fictitious sales, incurred losses from their activity, Chainalysis noted. However, the aggregate profit of 110 users amounted to almost $8.9 million.

“These $8.9 million were most likely earned from sales to unsuspecting buyers who believed that the price of the NFTs they purchased would rise as a result of sales among collectors,” the experts explained.

They added that their analysis cannot be considered exhaustive, since only trades conducted on Ethereum and Wrapped Ethereum were considered.

Regarding money laundering via NFTs, Chainalysis analysts noted that volumes of illicit funds flowing to NFT platforms in the segment remained modest. In Q3 2021 there was a sharp uptick, with the figure exceeding $1 million, and in the following period the figure reached $1.4 million.

“All this activity is but a drop in the ocean compared with the volume of money laundering via cryptocurrency amounting to $8.6 billion, tracked by us over the course of 2021,” the Chainalysis team said.

Analysts say that trading platforms, regulators and law enforcement should strengthen oversight in this area to bolster trust in the new asset class.

In January, the total NFT trading volume reached a record $6.86 billion.