Short selling Expert compares NFT price manipulation to the oldest trick in the book

The Founder of Kynikos Associates, a New York City registered investment advisor focused on short-selling, James Steven Chanos was recently spotted criticizing the trending NFT industry at the FT Live Conference on Thursday.

According to Chanos, the NFT sphere has been overflown with “nefarious activity” and conflicts of interest. Being a noted art collector himself, Chanos does not approve of the digital era’s evolution of making and selling art. Chanos has compared the tokenized market strategy to “wash trading”. He asserted that traders can conveniently set a false, inflated market price, only to then issue another set of NFTs later, at a seemingly prominent discount, to trigger massive buying.

“What I worry about is that affiliated parties are setting prices for some of these NFTs at auctions, or so-called sales, with themselves in effect…So they can get in on the 10-fold increase that they just manufactured. This is as old as markets. This is wash trading,”, Bloomberg quoted Chanos comments at the FT Live Conference.

Wash Trading

Wash Trading is rapidly becoming the bad fish of the NFT pond, spreading viciously throughout. Wash trade is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace. Something that sounds like “Wash Trading” is reportedly considered to be one of the loopholes for the infamous US infrastructure Bill’s crypto clause.

Traders can use the wash trading trick to sell crypto assets, as one does with stocks, i.e., at a considerably lower price to further decrease the capital gains tax. The US government has reportedly not mentioned anything against the crypto community using the alleged wash trading loophole if people don’t repurchase the same or a substantially similar asset within 30 days.

However, Austin Woodward, the CEO, and co-founder of Taxbit told Fortune publication that, “The IRS has been aware of it it’s just been lower prioritization…Digital assets are just moving so fast in general and the 1099 reporting in the infrastructure bill has just been a higher magnitude issue for the time being.”