Get ready for the feds to start indicting NFT wash traders

cointelegraph.com:

Studies show that most people who attempt to wash trade nonfungible tokens (NFTs) are unprofitable. But that doesn’t stop them from trying, which makes it a glaring regulatory and enforcement issue for the industry. 

In wash trading, manipulators buy and sell an asset between themselves to create the appearance that the asset is in higher demand and, therefore, worth more than it would be otherwise. With NFTs, wash trading is fairly straightforward: Imagine an investor holds $1 million in Ether (ETH). The investor mints an NFT and proceeds to sell it to themself for all the ETH they own. The transaction is then on the blockchain for $1 million in ETH. The price of the NFT has been set through a wash trade to the benefit of the individual who minted the NFT.

It might be tempting to think that this is a “victimless” crime since it’s unlikely any money actually changed hands if it was a wash trade, but that’s false. By rewarding allegedly fake high-volume traders with real money, NFT investors stand to lose millions to scammers, and legitimate traders may be fooled into overpaying for their investments.

Related: GameFi developers could be facing big fines and hard time

These fraudulent transactions also drive Gresham’s Law (bad money drives out good money) in crypto, driving out legitimate investors and traders as the exchange’s reputation is destroyed.

When it comes to NFTs, however, the rules are not so clear. Such tokens may not be securities, so the same laws and regulations governing securities trading may not apply to them.

Wash trading has been barred in the United States since the passing of the Commodity Exchange Act in 1936 in response to its popularity as a manipulation tool. Since then, however, the Securities and