Why is crypto wash trading legal?

When someone doesn't understand a phenomenon, they usually dismiss it as cheating or luck. It's usually the only visible factor, which is why they assume it's the dominant one in determining the behavior of a system. But it's best to factor it out and look for others.

There's a reason prices go up, there's a reason prices go down. Perhaps the reason prices went down are all gone, leaving it to float up. Scarcity is built into many cryptos and so it's only natural that prices go up even with no action taken on anyone's behalf.

There's a popular saying in investing that be greedy when others are fearful and fearful when others are greedy. The data on public attention might well be inversely correlated with the price. With crypto, most of the assets are in the hands of a few and those few can move the needle more than the masses.

It's not legal but it's allowed because regulators aren't equipped to handle so many violations. There have also been some pro-crypto (under the guise of "innovation") members of Congress who have encouraged a light touch.

Evidence?

Today the SEC ruled that stablecoins are securities.

It is a moving goal post.

> Why is this allowed?

Because computer networking systems are protocol-agnostic, and we never anticipated that we'd need laws to control digital asset settlement.