Wash Trade Crypto Scams-One of the Dirtiest Tricks on the Blockchain

Have you heard the expression “It’s a wash!” Well, if you think about the meaning of this phase, you’ll understand how one of the major crypto scams works. In fact, according to the National Bureau of Economic Research,  wash trading accounts for 70% of transactions on some crypto exchanges, even though they may deny it. The celebrity investor Mark Cuban has warned that the plethora of wash trade crypto scams may even bring down major crypto exchanges. 

What Is a Wash Trade Crypto Scam? 

Let’s say we’re playing chess. I win the first game. You win the second game, and then you say “It’s a wash (that’s before I, of course, suggest playing a third game). If two sides seem to be equal and neither has an advantage, it’s a wash. 

What does this have to do with crypto scams? When crypto fraudsters want to create a false value of a brand new digital coin or asset, they will use money from their own account to purchase the coin and inflate its value. They don’t lose anything if they are the ones making the transaction. They are both buyers and holders, and when it’s time to cash in, they will be the sellers, so it’s a “wash,” meaning they don’t lose anything. In fact, as more people buy and the price goes higher, selling out at the right time means they’ll make a killing. 

Often cybercriminals buy up a lot of a coin they issued, generate hype, and show people the coin is selling like hotcakes and the price is going up. When people are convinced to buy the digital asset, they’ll cash out their position when it is at a high price, leaving honest traders in the lurch with coins that are virtually worthless. 

How People Get Away with Wash Trade Crypto Scams

Of course, if this were s stock or a commodity, the people who perpetrate this scam would be arrested and charged with securities fraud. This is clearly manipulating the price of an asset and using dishonest and illegal tactics to encourage people to buy their worthless tokens. 

However, given the anonymity of the blockchain, it’s easier to conceal price manipulation and wash trade crypto scams. Although crypto exchanges, such as Binance, deny that they allow wash trades and asset manipulation, it can’t be denied that account holders on Binance definitely get away with it. 

Will New Regulations Clamp Down on Wash Trade Crypto Scams?

Fortunately, governments of many countries, including the United States are drafting policy changes that will put new regulations in place to prevent and penalize crypto scams. The Securities and Exchange Commission (SEC) is becoming more aggressive in clamping down on bitcoin scams and is increasingly catching and fining violators of securities regulations. 

The scale of the crypto scam problem is so large that even regulations and SEC crackdowns may not cause an immediate reduction in crypto fraud. However, the goal is to bring crypto in line with other currencies and assets which are subject to government regulation and oversight. The anonymity of the blockchain may make this a challenging task, but many feel it has to be done to make crypto investing truly safe and profitable.

Have You Lost Money to a Broker or Crypto Scam? Talk to Us?

Broker Dispute professionals are the people to contact if you suspect you’re dealing with a scam broker or another type of fraud. We have the expertise and the technical solution to unmask information about crypto scams. We will launch an investigation and create a report that will boost your claim and assist you with fund recovery.