Famous short-seller Jim Chanos isn’t too impressed with nonfungible tokens or NFTs — unique digital assets that represent ownership of real-world items such as art, video clips, music and even real estate. While NFTs use the same blockchain technology that powers cryptocurrencies, they are not currency. In the NFT space, investors have been clamoring to purchase digital assets and buyers seek to make a profit. But NFTs aren’t that great of a deal, according to Chanos. He claims that the NTF market is rife with “nefarious activity” and conflicts of interest.
“What I worry about is that affiliated parties are setting prices for some of these NFTs at auctions, or at so-called sales, with themselves in effect,” said Chanos, a hedge fund manager and founder of Kynikos Associates, during the FT Live Conference.
NFTs are hot commodities right now. Several high-profile NFT transactions have occurred, such as the $69.3 million purchase of a Beeple artwork. In August, daily NFT sales peaked at $268 million, according to NonFungible, which tracks digital certificates that serve as proof of ownership of an asset.
Traders can set a false, inflated market price and then issue another set of NFTs at a supposed big discount for the public to purchase, Chanos said. “So they can get in on the 10-fold increase that they just manufactured. This is as old as markets. This is wash trading,” he said, Bloomberg reported.
Wash trading happens when an entity simultaneously acts as the buyer and seller for the same asset to pump or manipulate prices.
Chanos is perhaps most famous for predicting the fall of the U.S. energy and commodities giant Enron before it filed for bankruptcy in 2001. Embroiled in a scandal over accounting and corporate fraud, Enron lost $74 billion in the four years leading to its default.
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Chanos was a short seller of Enron throughout 2001, increasing his short position as more information surfaced. Short selling happens when an investor borrows a security and sells it on the open market, planning to repurchase it later for less money.
Chanos’ company, Kynikos, profited from the trade. He made around $500 million profit on his shorts, according to Finance Monthly.
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