NFT sales hit $7 billion all-time-high in January, but it may just be a bubble waiting to pop

• Amid a bear market for cryptocurrencies, trade around non-fungible tokens (NFTs) was seen surging.
• Overall trade volume rose almost three-fold in less than a month to hit $6.86 billion, most of which came from NFT platform LooksRare, touted to be an opponent to OpenSea.
• According to experts, the jump may be unsustainable with suspected wash trading driving the trade volumes.

The cryptocurrency market has been bathing in red since the New Year, but the market for non-fungible tokens (NFTs) has been thriving — at least on paper. According to numbers collated by The Block Research, NFT trade volume jumped nearly three-fold in the month of January to $6.86 billion from $2.67 billion in December.


Majority of the credit for the uptick goes to LooksRare, a new NFT platform that is being touted as the ‘decentralised’ competitor to OpenSea, the biggest player in the field in terms of all-time-value value. This isn’t to say that OpenSea didn’t bring in its fair share of business. In fact, it doubled its trade value.

While the fall in the value of cryptocurrencies, especially Ethereum, made it cheaper to pick up NFTs, experts opine that at least a part of the jump is artificial. The massive trading value seen on LooksRare may merely be a result of NFT owners buying and selling digital art between themselves to pump up the price — a practice called ‘wash trading’.

Wash trading makes a comeback

At the time of launch, LooksRare raked in $100 million in NFT sales within the first 24 hours of going live. Even then, many speculated that these high trade volumes were a house of cards that would come crumbling down once the hype faded.

To LooksRare’s luck, it also happened to launch at a time when OpenSea was under fire for allowing a bug, which let hackers buy NFTs at lower prices than their market value, exploit the platform.

However, ‘wash trading’ as a concept isn’t new. The Securities and Exchange Board of India (SEBI) released a policy to address wash trading or self trade in 2017. This came in after the Ketan Parekh Scam, who used shell companies to trade the shares of 10 low profile stocks and artificially drive up their price.

Wash trading with NFTs — where is the profit?

In essence, wash trading is when a seller buys their own product, thus drumming up artificial demand and manipulating the product’s price to rise higher than it otherwise would. Such a practice distorts the market and is not legal in most countries. However, the crypto market is not regulated and monitored as closely as the rest of the financial system, letting some people get away with it.

The NFT marketplace LooksRare has reported trading volumes of $2.25 billion at the end of January 2022. Such a steep rise in just twenty days is unprecedented, as is their average trade volume per transaction of $415,000.

Google Search Trends show a large rise of interest in NFT from the day LooksRare was launched, from countries such as Russia, Turkey and Ukraine.

The fact that LooksRare is organised as a community-owned marketplace that shares profits with traders, makes wash trading even more attractive to traders who can pull it off. The LooksRare marketplace documentation indicates a belief that NFT royalty payments, trading platform fees, and crypto gas fees would make wash trading unprofitable. Yet analysis by CoinTelegraph shows that a few large wash traders have been able to find a way, by using NFTs with no royalty fees attached.

The ‘wash traders’ profit by receiving ‘trading rewards’ from LooksRare, with the largest ones receiving the most LOOKS, which is the native cryptocurrency used on LooksRare. They can then sell their LOOKS tokens to redeem Ether tokens, which can be used in the wider crypto world.

According to the data, these transactions on LooksRare, which are only 2% to 3% of OpenSea in total trades, have still been able to reach 50% of the total trading volume seen on OpenSea. LooksRare is slated to halve the trading reward it shares with traders, in mid-February.

Analysis by Delphi Digital indicates such a model is unsustainable, and that such traders will leave when wash trading is no longer profitable, leading to a significant drop in trading volume. Would trades after that be more authentic, or will the halved rewards still enable unsustainable practices, is an open question.

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