How bitsCrunch’s Wash Trade Index Works

What is Wash Trading?

Wash trading refers to an activity where one or more traders have schemed to create an artificial demand for security by purchasing and selling it multiple times. This results in traders and investors paying more for a security than it is worth. In NFTs, this fraudulent activity affects both the price and volume of an NFT project, resulting in marketplaces no longer having reliable metrics for determining the growth and reach of their platforms.

According to bitsCrunch’s latest report, the NFT market saw a boom at the beginning of 2022, with an approximate volume of $17 billion in the first quarter of 2021. However, approximately $11 billion was wash-traded out of the total volume. The volume was primarily driven by the emergence of marketplaces that would come up with reward tokens on each transaction conducted on their platform. For more details about wash trading, check out this link.

What is Wash Trade Index?

bitsCrunch’s wash trade index represents the level of wash trading prevalent in a selected blockchain, marketplace, or collection, providing more precise insights into the overall trading activity. The index is calculated by determining the percentage of wash-traded volume over the non-wash-traded volume. This index will be either blockchain-specific, marketplace-specific, or collection specific. The index value can range from 1 to 100, with 1 being the lowest wash trade activity level to 100 being the highest presence of wash trading activity in a collection, blockchain, or marketplace.

bitsCrunch aims to make this wash trade index the most reliable metric in the NFT ecosystem, which offers critical insights into NFT trading/flipping.

How to read the index value

Blockchain wash trade index

This index represents the level of wash trading prevalent in a specific blockchain. It is calculated by determining the percentage of wash trade volume over the non-wash trade volume.

Marketplace wash trade index

This index represents the level of wash trade in the selected marketplace. It is calculated by looking at the percentage of wash trade volume over the non-wash trade volume.

Data points required to calculate the index

To calculate the NFT index, we gather data from the blockchain by analyzing all NFT transactions. To obtain the data points we look at daily trends and historical data. By analyzing the daily trends in NFT transactions, we get a deeper understanding of the current market conditions. Whereas, we look at extended historic data to avoid any potential manipulation of the index by any party. By analysing the historical data, we can identify more accurate trends and avoid the effects of wash trade transactions, which can be difficult to detect in just one transaction.

Volume

To have a comprehensive view of the NFT market, we consider both the total NFT sales volume and the total wash traded volume. This includes an analysis of both daily and historical data.

Traders

We also track the number of wash traders by analyzing both the daily count of wash traders and the historical count, as traders are often the initiators of wash trading.

NFT transactions

Transactions play a crucial role in our platform. Ergo, we pay close attention to daily and historical transaction trends and wash traded transactions.

Conclusion

BitsCrunch‘s Wash Trade Index provides accurate insights and reports on wash trading activities in NFT markets, allowing traders to identify fraudulent behaviour by analysing daily and historical trends across collections, blockchains, and marketplaces. We calculate the index based on multiple data points, providing a reliable indicator of trading behaviour.

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