One of the things that was a big selling point of cryptocurrency was that it was supported by blockchain technology which supposedly meant that all the transactions were transparent and publicly available. I had thought that this would mean that frauds would be difficult to pull off since there is supposed to be a digital trail of all transactions that can be checked by anyone. That shows just how much I know and why I should never go anywhere near these things because as John Cassidy writes, recently there have been a spate of scams involving cryptocurrencies.
Last week, federal prosecutors arrested a fifty-year-old Long Island man and accused him of defrauding hundreds of investors by offering them gains of five per cent per week—yes, per week—from a fictional crypto-trading platform. “Eddy Alexandre allegedly induced his clients to invest over $59 million with promises of huge passive income returns,” Damian Williams, the U.S. Attorney for the Southern District of New York, said, in announcing the indictment. “In reality, no such technology existed, as Alexandre is alleged to have invested very little of their money—most of which he lost—and transferred most of it to his own personal accounts to pay for luxury items for himself.”
The day before Alexandre’s arrest, Europol, the E.U.’s law-enforcement agency, placed Ruja Ignatova, the German inventor of the OneCoin cryptocurrency, on its most-wanted list, for “having induced investors all over the world to invest in this actually worthless ‘currency,’ ” which has produced a total loss that “probably amounts to several billion” dollars. Earlier this year, the F.B.I. arrested a New York couple and accused them of helping launder billions of dollars in stolen bitcoin.
Most crypto swindles, though, are on the smaller end of the spectrum. U.S. News & World Report recently ran an article about the “5 Top Crypto Scams to Watch in 2022.” The list includes some traditional tactics for illicitly relieving rubes of their money, such as pump-and-dump schemes and phishing for passwords. It also describes new, more novel schemes, including the “pig butchering” crypto scam, which often involves an attractive person approaching you online and offering you spectacularly lucrative crypto investments.
These exposures may have led investors to be more wary and that may account for the recent drop in their value.
Following gyrations last week of the TerraUSD stablecoin, and the evisceration of the Luna cryptocurrency that’s linked to it, investors’ willingness to swallow hot air appears to be diminishing. “Hyped and leveraged areas of crypto . . . are seeing mass liquidations, as it is becoming clearer that all the elevated prices were traded on speculation, with limited real user demand,” Morgan Stanley said, in a research report published late last week. N.F.T.s could be the next crypto asset to watch, the report added, noting that the only reason many investors bought these assets was because they thought prices were going higher.
That’s what happens in a speculative bubble: people follow the trend blindly. Only subsequently do they ask some of the questions they should have asked earlier, such as: What use does the object of speculation really serve?
I recently watched a Netflix documentary Trust No One: The Hunt for the Crypto King that described how the young owner of a cryptocurrency exchange, a place where people can exchange between cryptocurrencies and regular money, suddenly died on a trip in India at age 30. Nobody else had the passwords to the accounts which means that the $200 million in it supposedly got locked permanently. This fueled all manner of speculation that he had faked his death in order to escape with the money. It took a forensic accountant to figure out that he had likely embezzled the money by putting it into his own account, presumably to feed a gambling addiction. So much for the much touted transparency.
Here’s the trailer.
Apparently this year’s Super Bowl game had a large number of ads touting cryptocurrencies. Larry David’s ad has been widely praised. It features David as different characters who sneer at major innovations down the ages. It is funny but I thought it was too long because the joke wears thin. The ad ends with the narrator telling viewers, “Don’t be like Larry” and miss out on the cryptocurrency and NFT boom. Actually, I am like Larry. I refuse to get involved in something about which I know nothing.
Here’s the ad.