Chainalysis has published a report that provides insight into the NFT market during the last year, including information on NFT wash trading and money laundering.
Market segmentation
Chainalysis’ data explains in detail where the buyers of NFTs come from. According to web traffic data, the majority of visitors to NFT marketplaces come from Central and Southern Asia, North America, Latin America, and Western Europe.
According to the report, retail investors mostly drive the market, with collectors accounting for only 10% of transactions but 30% of total volume. Both the overall volume and the average transaction value climbed throughout the year.
Chainalysis believes that the entire volume is at least $44.2 billion USD. In contrast, the total value of NFT transactions in 2020 was only 106 million USD.
Money laundering and wash trading are prevalent practices
However, if wash trading becomes more popular among NFTs, that figure may be overstated. Traders in this fraudulent operation inflate the prices of digital art works by selling them to a self-owned wallet.
Chainalysis highlights in a recent blog post that they have found 262 wash dealers, the majority of which were unprofitable due to gas fees. However, the 110 profitable wash traders made a total profit of $8.8 million USD. According to the blockchain security firm, NFT wash trading is a legally murky area:
While wash trading in conventional securities and futures is forbidden, no enforcement action has been taken against wash trading in NFTs. This may change as regulators adjust their focus and use existing anti-fraud laws to emerging NFT markets.
Physical art is a typical way for money to be laundered. Many people are wondering if the same holds true for digital art. Chainalysis discovered that 2.4 million USD in bitcoin was delivered to NFT marketplaces from addresses affiliated with frauds, in addition to a smaller amount of stolen crypto money.
