Report: Crypto Scams Have Already Netted $4.2 Billion in 2019

  • Cryptocurrency scams have generated $4.2 billion through the first half of 2019.
  • New exchange regulations may crackdown on the ability to launder illicit crypto funds. 

A new report by CipherTrace shows that cryptocurrency scam artists have brought in over $4.2 billion so far in 2019, with many forms of theft showing an upward trend. 

Crypto Scams in 2019

According to the anti-money laundering report published by crypto intelligence firm CipherTrace, crypto-related scams netted $4.26 billion through the first half of the year.

The report claims that insider thefts were by the far the largest generating offense, defrauding the market and costing investors and traders massive losses. In addition, the actions of hackers alone were responsible for more than $124 million in theft from exchanges during Q2 2019. 

Outright thefts, scams and other “misappropriation” of funds from crypto users and exchanges showed an accelerated trend through the second quarter of the year, with the report saying that 2019 could turn out to be “the year of the exit scam.”

CipherTrace cites the high-profile disaster surrounding the QuadrigaCX exchange and its deceased owner, in addition to a South Korea-based ponzi scheme in Q2 2019 that defrauded millions of user of $2.9 billion in crypto. Bitfinex was also highlighted in the report for the “lost” $851 million that was implicated in its ongoing legal case with Tether. 

New Exchange Regulations

CipherTrace claims that the sweeping implementation of Anti-Money Laundering and Counter-Terrorism Financing regulations, which will come into effect over the next couple of months,  will hinder the ability of criminals to launder their illicitly acquired funds. In particular, the report finds the controversial recommendations of the Financial Action Task Force (FATF) to be a potential benefit to market security. 

In June, the FATF advised member countries to implement a “Travel Rule” on cryptocurrency exchanges, which would apply to all transactions over a $1,000 threshold. In addition, exchanges would be required to share user information, including personal details, when moving funds from one platform to another.

The ultimate goal is to reduce the ability to launder funds and conduct other illegal activities through the use of crypto and exchanges, which have thus far allowed for a degree of anonymity. While the FATF rules may combat money laundering, CipherTrace recognizes its implementation will be challenging for exchanges. 

According to the report, 

“The Travel Rule is a major change in regulatory requirements for Virtual Asset Service Providers (VASPs), and it is causing companies to rethink how they manage cryptocurrency transactions and identity information...This requirement presents a conundrum for exchanges given the current state of cryptocurrency blockchains as it appears to fly in the face of what many see as a foundational characteristic of cryptocurrency—pseudanonymity. Devising a workable solution will require major technological innovation such as cryptographically controlled methods of securely sharing this information. Such privacy enhanced compliance would only reveal personal private details if required to do so by law enforcement.”

Cryptocurrency may have gained a reputation for its use in illicit activities due to the anonymity and ease of digital transactions. However, CipherTrace reports that only a minuscule percentage of bitcoin transactions are related to criminal behavior. Nonetheless, the report also found that “nearly all dark market commerce” is conducted through the use of crypto.