Wash Trading

The same person, or colluding parties, sit on both sides of the deal. Because ownership does not truly change, the volume reported tells nothing about real demand. Motives include attracting buyers to a thinly traded asset, qualifying for exchange rebates or rewards based on volume, creating tax losses, or moving funds between accounts. The activity is common in crypto and NFT markets, where wallets are easy to create and some venues reward volume. Regulators ban it under market manipulation rules, and United States commodities law prohibits it by name. Detection looks for repeated trades between linked accounts or wallets, opposite orders of the same size at the same moment and volume with no price risk. Aggregators and investors who read volume as interest are misled about how easy the asset is to sell.

The operator of a small crypto token controls two wallets. Every few minutes one wallet sells tokens to the other at slightly rising prices, creating daily volume of 5 million while real outside trading is under 100,000. Data aggregators list the token as highly active, which draws new buyers. Blockchain analysis shows that the wallets share a funding source, and the exchange delists the token.