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Cryptocurrency intelligence firm CipherTrace has estimated that cryptocurrency-related thefts, scams and fraud could exceed $4.3 billion for the year.
The firm has released its Q2 2019 Cryptocurrency Anti-Money Laundering (AML) Report. The quarterly report analyzes cryptocurrency-related crime and provides a comprehensive overview of active and pending regulatory legislation and emerging trends. It also covers Facebook’s Libra and its potential implications for global finance.
“Outright thefts as well as scams and other misappropriation of funds from cryptocurrency users and exchanges continued apace, netting criminals and fraudsters approximately $4.3 billion in aggregate for 2019,” the report states.
CipherTrace said that despite the efforts of crypto exchanges, wallets and other custody services to ramp up their security measures, cybercriminals looted $125 million in bitcoin, ethereum and other digital assets from exchanges this quarter. It particularly noted the security breach at Binance in which the exchange lost tens of millions of crypto assets to hackers who used “a lethal cocktail of phishing, viruses and other attack vectors.”
That said, CipherTrace clarified that the amount of $125 million is based on the price of the assets at the time they were stolen. In actuality, given the recent price movement of Bitcoin and other tokens, this value is likely much greater since they tripled in value during Q2 2019.
In addition, exit scams, thefts and dark market takedowns still under investigation could push the total losses much higher, it said.
The Growing Trend of Exit Scams
The report has identified a concerning trend that could overshadow the cryptocurrency losses due to cyberattacks—the “Exit Scam.”
While hacks have netted criminals $227 million during the first half of 2019, several alleged exit scams under investigation have netted fraudsters $3.1 billion dollars and $874million has been misappropriated.
On this front, the report cited the unraveling of certain facts in the “Fifth Report of the Monitor” related to the infamous QuadrigaCX incident, which ultimately cost exchange users nearly $200 million in lost crypto assets. It also noted the unconfirmed exit scam around PlusToken, a purportedly South Korean exchange and investment pyramid scheme, which may have cost millions of unsuspecting crypto investors as much as $2.9 billion in lost funds.
“CipherTrace has not completely confirmed the details of this alleged exit scam [PlusToken], including in whose pockets the billions ultimately found a home,” CipherTrace said.
Meanwhile, the darknet marketplace Wall Street Market’s attempted exit scam resulted in the seizure of over $11 million worth of crypto assets by European authorities. Wall Street Market was one of three darknet markets seized this quarter.
Also, the report pointed out that despite the proliferation of privacy coins, Bitcoin is still king in dark markets and cybercrime.
Regulatory Measures
CipherTrace said that bad actors would now have a hard time to launder their illicit funds as new Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations passed in 2018 are coming into effect globally over the coming months. In addition, the Financial Action Task Force (FATF) advised member nations to begin implementing its “Travel Rule,” which applies to all cryptocurrency transactions over a $1,000 threshold.
The G20 has already announced its full support to the new rule, which requires transactions between exchanges to include personal information about the sender and the receiver of funds similar to international bank wire and SWIFT transfers of fiat funds.
“Cryptocurrency regulation is now obviously viewed as an imperative across the globe, and there is increasing political concern about the potential financial disruption blockchain technologies pose,” CipherTrace said. “In particular, Facebook’s entre into the cryptocurrency world by announcing Libra ignited a fury of debate in global capitals regarding the risks and rewards of these new financial tools.”
