The European Banking Authority (EBA) has called for new pan-EU rules on crypto assets in a bid to heighten consumer protection.
According to an official report released today, the new set of rules would override the current patchwork of different crypto asset regulation across the EU, which could derive in unfair competition across countries.
“Typically crypto assets fall outside the scope of EU financial services regulation,” reads the report.
“Moreover, divergent approaches to the regulation of these activities are emerging across the EU. These factors give rise to potential issues, including regarding consumer protection, operational resilience, and the level playing field.”
Cryptocurrency has long been the cause of headaches for regulators across the globe as they set out to find a way to control the very system designed to circumvent mainstream financial institutions.
Back in October, the Financial Action Taskforce (FAFT) said that putting a stop to virtual assets being used to launder funds was its top priority for the year. It also recommended that countries begin to supervise “virtual asset providers”.
The EBA’s call-to-action comes as the price of bitcoin hovers slightly above the $4,000 mark, a stark contrast from when it was worth almost $20,000 in December 2017.
5 ludicrous cryptocurrency exit scams that regretfully happened in 2018
When you say “cryptocurrency,” you’d be forgiven if one of the first things that comes to mind is: “exit scam.”
Exit scams refer to those cunning plots, whereby blockchain startups collect investors money, often through initial coin offerings (ICOs), only to disappear suddenly, along with any funds raised.
This happens so frequently that by August, more than $100 million in funds contributed to ICOs had been stolen as part of an exit scam in 2018.
They’re indeed such a common occurrence, odds are there many from this year that you have forgotten.
While this may not be an exhaustive compendium, consider this a humble ode to the exit scammers, you bunch of selfish jerks.
1. The exit scam that was, and then suddenly wasn’t
Earlier this year, just as the dizzying effects of the bull market were wearing off, one cryptocurrency “company” decided to pull a ludicrous publicity stunt .
A blockchain startup, Savedroid, whose claim to fame was raising $50 million through an ICO in the heat of 2017’s crypto-mania, bombastically replaced everything on its website with this meme:
What followed was a blatantly arrogant tweet from the project’s founder, sitting on the beach, drinking a beer. It simply read: “Thanks guys! Over and out … # savedroidICO.”
Unsurprisingly, many rightfully assumed this to be yet another cryptocurrency exit scam, with independent researchers across the internet flexing their detective skills to pinpoint exactly where the tweets were coming from.
Turns out, the whole thing was a heavily manufactured PR-stunt. When an outraged community called Savedroid out for tricking the public, its team excused themselves by claiming it was their way of teaching the industry “a lesson.”
It’s hard to say if we really learned anything, though, other than Savedroid has an absolutely tasteless marketing team.
2. South Korean crypto-startup disappears with $2.7M
Last month, ringleaders of cryptocurrency scam named “Pure Bit” exacted the final stage of their plan : screwing over all of their investors.
As with all effective exit scams, the project’s founders suddenly took down their website and disappeared with at least 13,000 ETH ($2.7M at the time).
The funds had been raised via an initial coin offering throughout November this year, under the guise of launching a new, very profitable, ERC-20 token through the Ethereum blockchain.
Transaction histories showed all of the investments were suspiciously moved in the hours before their KakaoChat was wiped clean, along with all of Pure Bit’s related social media channels.
In hindsight, there were certainly red flags. Part of Pure Bit’s plan for a successful ICO was establishing a seemingly profitable affiliate program reminiscent of a Ponzi scheme.
Of course, this included promises of dividends for holders and rewards for recruiting new members.
3. A classic cryptocurrency exit scam, with a cocky twist
This incident is undoubtedly one of the most arrogant exit scams of cryptocurrency history.
At the start of the year, Prodeum caused a stir with a seemingly plausible plan to create a fruit and vegetable coding system for tracking produce on the Ethereum blockchain.
All seemed well until one night, the Prodeum site was scrubbed , replaced with simply one word.
The startup’s Twitter page, LinkedIn profiles, and white paper disappeared around the same time. One person did come forward, a person listed as one of the project’s founders.
In a brief social media message, he claimed to be the victim of identity theft. He implored he had never heard of the “business,” and was doing his best to figure out who had stolen his identity.
So while it remains unclear just who was behind the fraudulent Prodeum ICO, estimates suggest the scammers made away with anywhere from 430 ETH to 970 ETH.
At the time, those amounts were worth between $500,000 to $1 million.
4. Fraudsters trick investors out of $4.5M with fake trading algorithm
The next exit scam is nothing but a cautionary tale for newer cryptocurrency investors.
LoopX promised the blockchain industry a cutting edge trading algorithm capable of automatically securing amazingly consistent profits.
“Our software handles over 10,000 trades per second and calculates over 100 currencies at a time,” associated marketing material declared. “Always looking for those opportunities to make profits bigger then 10%, which will payed out to our members on a weekly basis.”
As with all exit scams, there came a moment where it all came to a head, and the lofty promises were revealed to be nothing but an elaborate ruse.
Seemingly all at once, the company scrubbed its social media fingerprint from the internet, deleting its Facebook, Twitter, YouTube, and Telegram accounts.
At one point, its website had declared total ICO pledges had amounted to 276 BTC and 2,446 ETH, which at the time rounded out to $4.5 million.
5. All hail the King of the Exit Scam – BitConnect
Yep, the BitConnect exit scam totally happened in 2018. Feels like years ago, doesn’t it?
As with all blatantly obvious Ponzi schemes, BitConnect succeeded by structuring its “business” using tiers. “Investors” were promised up to 40 percent returns on any funds sent to the platform.
A four-tiered system meant revenue was supposed to increase with more money invested.
Part of its shtick was to convince users that infinite one percent returns were not only possible, but guaranteed, by the BitConnect system. Again, this was supposedly backed by a fancy trading bot and complimentary proprietary software.
At the time, Ethereum founder Vitalik Buterin commented: “If [one percent per day] is what they offer, then that’s a [P]onzi [scheme].”
Sure enough, as its market cap began to shrink from its all-time high of $2.6 billion, BitConnect suddenly shut its doors, closing its internal exchange platform and cutting off investors from their capital (at least, whatever was left of it at the time).
While it’s difficult to determine just how much money was stolen from investors in the life of BitConnect, you can at least read all about how its masterminds built such a powerfully audacious scam, despite such heavy criticism from the cryptocurrency public.
So, please, use this list as a reference for finding potential red flags in new, seemingly innovative cryptocurrency projects. In 2019, let’s finally shake this proverbial tail for good.
NY Attorney General goes after Tether and Bitfinex for $850M cover-up
The New York State Attorney General (NYSAG) is reportedly building a case to sue cryptocurrency exchange, Bitfinex, and stablecoin , Tether.
As court documents dated April 24 state, neither Bitfinex nor Tether are licensed to operate in the state of New York, and yet the Office of the Attorney General (OAG) believes New York-based investors did use the exchange to trade Tether.
As a result, Bitfinex and Tether contravened US legislation designed to protect investors, including one which requires the firms to maintain relationships with banks that can “r eliably hold the funds and process client deposits and withdrawals including banks that can operate in the US and will service US individuals .”
Tough times with the banks
The documents further detail Bitfinex and Tether’s “troubled banking relationships” which eventually led to a series of undisclosed partnerships with non-US third-party payment providers. There were also a number of transactions used to cover supposed liquidity issues.
Up until 2017, Bitfinex and Tether relied on wire transfers sent from Taiwan-based banks to their US-based Wells Fargo account to service its customers withdrawals. In March 2017, Wells Fargo refused to continue to support Bitfinex and Tether’s transactions, “forcing the companies to quickly find alternatives,” the court documents read.
Previous reports have confirmed that Bitfinex also had accounts with Dutch banking giant ING, which it set-up after Wells Fargo withdrew its support.
From here Bitfinex and Tether worked with a Puerto Rico-based bank, which has since shut down, and a Bahamas-based bank called Deltec Bank and Trust Ltd.
The documents disclose an $850 million loss of funds from another of Bitfinex’ banking partners, Crypto Capital, which as The Block reports , has not been publicly disclosed until now. Bitfinex worked with the bank – believed to be based in Panama – to service customer withdrawals; however, no legal agreement between the firms was ever signed.
Suspicious transactions
That’s not all, though. The documents go on to detail a series of undisclosed and conflicting transactions that were carried out to cover Bitfinex’s losses, resulting from Crypto Capital’s alleged waylaying of funds.
Following a meeting in February this year, Bifinex allegedly took a line of credit of up to $700 million, borrowing on Tether’s US dollar reserves. Prosecutors believe the firms did not disclose this transaction to the public, Bitfinex traders, or Tether holders. At this meeting, no terms of repayment for the loan were discussed.
Prosecutors also believe the firms involved did not perceive the transaction to be a conflict of interest, even considering that Bitfinex and Tether are all operated by the same parent organization, iFinex Inc.
The line of credit has allegedly been used to cover up the $850 million loss of funds from Crypto Capital. However, in a statement published earlier today , Bitfinex responded to the allegations claiming that the funds are not lost, but have been “seized and safeguarded.” It claims it is still working to have these funds released.
This isn’t the first time so-called stablecoins have come under the microscope. Despite being badged as less-volatile cryptocurrencies, this hasn’t always been the case .
Tether in particular has made headlines numerous times before. One report claimed Tether had been subject to automated bot trading on cryptocurrency exchange Kraken.
The stablecoin issuer has also tried to use faux audits to try to shake off allegations of financial instability, but ended the relationship with auditors before any findings were reported.
In this case we’ll have to follow court proceedings and await an official verdict on Tether and Bitfinex’s potential wrong doings.
Did you know? Hard Fork has its own stage at TNW2019 , our tech conference in Amsterdam. Check it out .
