MARKET MANIPULATION CHATTER ZOOMS ON DIGITAL ART TRADE

A digital artwork by Beeple set auction records Thursday when it sold at Christie’s for a mind-bending $69 million. Twitter Inc. co-founder Jack Dorsey is auctioning the non-fungible token for the first tweet ever, “just setting up my twttr,” with the highest bid coming in at $2.5 million, so far.

LeBron James highlights are fetching six figures.

If you were somehow unaware, digital assets are booming, with buyers paying up for so-called non-fungible tokens (NFTs) that give them exclusive ownership of electronic tchotchkes. Explanations for why, say, a GIF of a cat with a rainbow trail commands a king’s ransom aren’t hard to come by.

The more prosaic theories say the price per pixel is surging as Bitcoin and other cryptocurrencies mint new millionaires every day and those newly rich digital natives look to spend in their adopted domain.

And sure, it could be as simple as a good old mania around the latest shiny object that’s caught people’s attention, Brandon Kochkodin reported for Bloomberg News.

But there’s also a nefarious suggestion popping up on message boards, Twitter and blogs that attributes at least some of the rise in prices to wash trading. That’s when a trader or group of traders buy and sell the same asset to create the illusion of heightened demand.

The claim is hardly new: Wash trading has been called “crypto’s open secret” and concerns about its prevalence have dogged the space for years. The US Securities and Exchange Commission (SEC) in a 2019 response to an application for a Bitcoin exchange-traded fund cited “fraudulent and manipulative activity” in the market as grounds for rejection.

In a world where identities are abstractions with 30 or so alphanumeric characters representing some hidden person’s digital wallet address, claiming wash trading is at once plausible and yet nearly impossible to prove.

Except for the most brazen of acts where two accounts repeatedly trade back and forth with each other, identifying self-dealing requires forensic accounting tricks like employing Benford’s law or analyzing trade size distributions by how they fit with established mathematical principles like Pareto-Levy.

WEEKLY FEATURE : BONNER DYTOC SHOWS THE WAY IN STOCK PLAY