Market Manipulation on the Blockchain

A nearly real-time, immutable blockchain audit trail is widely thought to deter market abuse, yet systematic evidence is scarce. Analyzing 7.4 million transactions from 561 NFT collections, which represent unique digital assets on public blockchains, I show that wash trading activity has a negligible impact on market outcomes. Rather than boosting the value of their own NFT collections, wash traders appear motivated by token reward programs offered by trading platforms.

In contrast, purchases by apparent insiders predict positive returns for the associated collections. Transparent ledgers thus both neutralize obvious trade-based manipulation and give market participants enough information to detect insider activity.