![]() Some cryptocurrency brokers and exchange platforms could be working with specific investors, and helping them wash trade some select cryptocurrencies. There are variations, though, and the most common one is when the crypto broker joins in on the scam. The above example, however, showcases a pretty basic situation of what is wash trading in crypto. So, if you’re looking at how to wash trade crypto, forget about it - this would make you a criminal, and repercussions would likely follow soon! Naturally, not only is this completely illegal, but it’s also something that is pretty simple to spot, if you know what you’re looking for. Little does this investor know, though, that the price of the asset is actually inflated by your trades - once the investor buys this token for the inflated price, you then sell your stash, and walk away with a profit. Now, another trader comes into the market, and what do they see? Well, if they were to look at the X token, they would notice that not only does it have some impressive volume numbers ( it’s traded frequently, and thus, appears to be highly liquid), but it’s also growing in price, as well.įrom this point of view, it would make the X token a theoretically perfect investment, even for a short-term trade. ![]() You don’t really mind whether or not you make a profit or a loss during these initial trades. You then start buying and selling this token in a super-quick manner - so fast, that the trades essentially cancel each other out. You start investigating how to wash trade crypto, and come up with a plan.įirst, you pick some sort of a crypto coin or token - let’s call it X. Imagine that you’re a crypto enthusiast who’s willing to utilize some less-than-ethical means of making a profit. To make all of that a bit simpler to wrap your head around, let’s look into an example of what crypto wash trading would look like: On top of that, in the United States, the IRS ( Internal Revenue Service - the authority responsible for tax collection) doesn’t allow crypto traders to register their wash trading losses as tax deductions, at the end of the tax year. Now, as mentioned at the beginning of the article, whether it be Bitcoin wash trading, or any other crypto asset on the market, the phenomenon is completely illegal. Granted that some exchanges participate in wash trading, this makes trusting crypto trading platforms quite difficult, and in return, proper research needs to be done, at all times. Wash trading can be done by a single investor, a group of traders, or even traders and brokerage platforms, working together. “Intention” is actually a really important term here - remember it we’ll come back to why that’s the case a bit later on in the tutorial. Wash trading refers to the phenomenon of a trader buying and selling some sort of a security in rapid succession, with the intention of artificially boosting the price of the asset, and tricking other investors by doing so. The way that it’s used within the cryptocurrency industry is actually kind of the same of how it works with stocks, as well. It originated in the stock market, sometime around the early 1900s. Wash trading is a pretty old concept, and one that spans multiple financial markets, as well.
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