According to CipherTrace $1.2 billion was lost to theft from exchanges and fraud in the first quarter of 2019. But the same report also states that things are set to change in Q2 and beyond.
The blockchain and crypto security company explained that losses to crime and fraud accounted for a whopping 70% of the entire level for the whole of 2018. Exit scams- where companies or ICOs disappear with no warning, taking with them the funds of investors were one of the biggest culprits, accounting for in the region of $356.
In addition to this is the alleged fraud involving the loss of $851 by Bitfinex. The exchange are accused of colluding with Tether to hide the loss of the funds which consisted of commingled client and corporate funds. The matter is currently under investigation by the New York Attorney general.
The CipherTrace report states that it believes that the real amount of losses could be much higher.
“Cyber criminals also developed ingenious new techniques to drain millions more from user accounts and wallets. These thefts only represent the losses that are visible. CipherTrace estimates the true number of crypto asset losses was much higher.”
What caused the spike between 2018 and 2019?
CipherTrace believe it is due to a “major hole in the current cryptocurrency regulatory fabric”, particularly in terms of cross-border payments. According to their analysis of 164 million BTC transactions, it was revealed that cross-border payments from the US to offshore exchanges increased from 45% to 66% during the 12 months ending Q1 2019. Once these payments reach offshore jurisdictions, they fall out of the remit of US regulations and abuses are more likely to occur.
Things could be set to change sooner rather than later
This time last year, the industry was pretty much unregulated- authorities and governments had very little idea how to go about bringing regulatory certainty to the market.
All of the money that was stolen or scammed in Q1 2019, still needs to be cleaned and cashed out in the form of spendable fiat currency. The thing is however that over the last few months there has been a wave of new regulations and AML/CTF laws which mean that bad actors will have a tougher job under the eyes of more clued up governments.
As of April, the EU plus 17 countries have some regulations or supervisory bodies in place, dealing with cryptocurrencies. One of the goals of these bodies is to roll out the FATF policy, as well as the EU 5th Anti Money Laundering Directive.
On a global scale, governments are moving fast to rethink controls on the internal business practices and security of exchanges. Regulators are banning privacy coins which are difficult to trace, and companies like France are insisting that banks give accounts to crypto businesses, in turn for adherence to the country’s laws.
Whilst the risk of investing in cryptocurrency is always present, and many bad actors do take advantage, we must also remember that these risks present themselves on a much bigger scale, with fiat currency.
Cryptocurrency is still very much in its infancy and with most governments and regulators asleep on the matter of how to approach it until Q4 2018, there is still a lot of work to be done to protect consumers and the public.
The good news is that as we move towards the middle of 2019, regulations and laws that are designed to both support and encourage the industry are coming thick and fast. It is hoped that these new laws will provide stability to the sector, as well as bring confidence to naysayers, and those who may be cynical of its legitimacy.