Chainalysis has released a report that sheds light on the NFT market in the past year, including some notes on NFT wash trading and money laundering.
Market breakdown
The data provided by Chainalysis goes into detail where the buyers of NFTs came from. Web traffic analysis shows that most visits to NFT marketplaces originate in Central and Southern Asia, North America, Latin America, and Western Europe.
The report notes that the market is largely driven by retail investors, with collectors making up only 10% of the transactions, but accounting for 30% of the total volume. Both the total volume and the average transaction value increased throughout the year.
Overall, Chainalysis estimates the total volume to be at least 44.2 billion USD. In comparison, the total value of NFT transactions in 2020 only amounted to 106 million USD.
Wash trading and money laundering are common
That figure might be an overestimation, though, as wash trading becomes a common practice for NFTs. Under this fraudulent scheme, traders drive up the prices for digital art pieces by selling them to a self-owned wallet.
In a recent blog post, Chainalysis notes that they have identified 262 wash traders, out of which most were unprofitable due to gas fees. However, the 110 wash traders that were in the green took home a total profit of 8.8 million USD. The blockchain security firm adds that NFT wash trading is a legal grey area:
While wash trading is prohibited in conventional securities and futures, wash trading involving NFTs has yet to be the subject of an enforcement action. However, that could change as regulators shift focus and apply existing anti-fraud authorities to new NFT markets.
Physical art is a common vehicle for money laundering. Many are wondering if the same applies to digital art. Chainalysis found that a total of 2.4 million USD worth of cryptocurrency was sent to NFT marketplaces from addresses that were associated with scams, in addition to a smaller sum of stolen crypto funds.
