Author: Ben Carlson
Source: a wealth of common sense
Compilation: Vernacular Blockchain Joyce
What kind of market will frantic financial fraud emerge? The following list may be useful for reference:
1. Professionals come and tell stories
2. Capital becomes blind
3. The banking industry intervenes
4. Individuals start to obtain investment leads from the crowd
5. Market turmoil
6. Seemingly good opportunities appear frequently
7. Ordinary people began to flood in
8. Innovation becomes crazy
Of course, the occurrence of the situations listed above does not mean that financial fraud will definitely occur, but throughout history, when these appear repeatedly, it is obviously time to invest with caution.
So, which corners of today’s financial markets have begun to breed similar frenetic financial fraud? The crypto market, which has repeatedly created rich stories, is obviously one of its hotbeds.
Risk characteristics of the crypto market
Let’s take a look at the crypto market against the above list:
(1) Professionals appear with good stories : The anonymous founder Satoshi Nakamoto with a mysterious background and the utopian dream of advocating liberalism make cryptocurrency a perfect financial asset with a story. Add in buzzwords such as encryption, decentralization, blockchain, and digital wallets, and it is obvious that this market can easily give laymen unclear imagination.
(2) Capital becomes blind : As early as the 19th century, the Economist editor-in-chief Walter Bagehot once described speculation as “blind capital”. Many speculators in the cryptocurrency field obviously do so, and they lack rationality and blind investment.
(3) Banking industry intervention : Although Wall Street’s capital is pouring in wildly, there are still many financial frauds in the field of encrypted assets.
(4) Individuals began to obtain investment clues from the crowd : With the popularity of the crypto market, the DeFi boom in 2019, and the recent NFT boom, the rise in cryptocurrency prices is staggering, and everyone is talking about cryptocurrencies. Regardless of the ups and downs, the herd effect seems to be at work.
(5) Market turmoil : Bitcoin rose by 1300% in 2017, fell by 74% in 2018, and rose by more than 90% in 2019. In 2021, it has risen tenfold or even a thousandfold. Such sharp rises and falls will obviously incur a large number of fanatical speculators, and the rise or fall will bring investors’ sentiment beyond expectations.
(6 ) Seemingly good opportunities appear frequently : Many speculators in the stock market turn to the encrypted market. For financial predators who want to harvest investor sentiment, this market seems to have gradually matured.
(7) Ordinary people began to flood in.
(8) Innovation starts to become crazy : This may be the most dazzling point in the story of crypto assets. After all, this is a new and exciting thing, and at the same time it is very innovative and incomprehensible.
Increasing financial fraud
The Wall Street Journal described the outbreak of financial fraud in the crypto asset market:
Crypto crime is booming. Chainalysis data shows that Ponzi schemes and other frauds involving cryptocurrencies involved at least $4.3 billion in 2019, while the total in 2017 and 2018 was only $3 billion.
After the surge in the number of ICOs in 2017 and many hacking attacks in 2018, Ponzi schemes have become one of the most popular fraud methods. Chainalysis pointed out that those head scams have benefited a lot: last year, the top six big scams accounted for more than 90% of the total stolen assets.
Ponzi schemes are indeed popular in the field of encrypted assets. The number of scams in 2019 is much greater than the sum of 2017 and 2018:
Like most financial scams, some scam stories are simply unbelievable to sane people. For example, this is a story that brought down a group of Major League Baseball players:
The U.S. Secret Service arrested John Michael Caruso on January 30, 2020. Caruso is the founder of Zima Digital Assets, a blockchain and cryptocurrency investment company, and calls himself the “Michael Jordan of cryptocurrency algorithm trading”. Also arrested was Zima co-founder and R&B singer Zachary Salter.
Caruso is Michael Jordan, who claims to be cryptocurrency algorithm trading. Who would have thought of being arrested so quickly?
Although the amount involved in this Ponzi scheme is “only” US$7.5 million, most of the groups involved in the case are elderly people, who are convinced of its extremely powerful market forecasting ability . This pair of scam artists kicked off the scam, declared bankruptcy immediately after receiving the hard-earned money of these blind investors, and then used the money to start their extremely luxurious private lives.
According to the Secret Service, the large amount of assets that Caruso and Salter obtained from customers were not used for investment, but for luxury consumption. Both of them live in luxury homes worth more than 9 million U.S. dollars. Among them, Caruso is the owner of the 2019 Lamborghini Urus. In the past two years, they have spent at least 350,000 U.S. dollars on renting luxury cars such as Rolls-Royce, Ferrari and Aston Martin. . Caruso has flown to London, New York, Chicago, Los Angeles, Hawaii, Cabo San Lucas and Aruba by private jet in the past two years, and flew to Las Vegas more than 30 times, gambling within 13 months Lost more than 1.4 million US dollars.
Another Ponzi scheme disclosed by the U.S. Securities and Exchange Commission (SEC) involved many doctors :
The SEC accused Michael W. Ackerman and his two partners of raising more than $33 million by claiming to investors that they developed a unique algorithm that can make excessive profits in the crypto market.
The SEC lawsuit alleges that Ackerman misled investors in terms of the performance of digital currency market transactions, the use of investor funds, and the safety of investor funds in trading accounts in the third quarter. The lawsuit further alleges that Ackerman tampered with screenshots of trading accounts in the third quarter, creating the illusion that the third quarter overinvested and profited in cryptocurrencies, holding up to $310 million in assets.
In fact, as it claims, the trading account in the third quarter never exceeded 6 million U.S. dollars, and Ackerman personally used the investor’s 7.5 million U.S. dollars to purchase luxury homes, high-end jewelry, multiple luxury cars, and private orders. High-end security services.
03 Summary
Therefore, once someone tells you that they “cracked the code” or have a “proprietary algorithm that can generate excess profits”, you should be extra careful. This is true in cryptocurrency , stocks, bonds, real estate, or any investment strategy that is sold by people. You value the high profits of others, and what others covet is your principal.
As the crypto market continues to be exposed and public attention continues to grow, financial fraud in the crypto market will increase.
The combination of threshold technological innovation and imaginative stories is obviously fertile ground for greedy financial fraudsters and speculators seeking to get rich.
There are huge uncertainties and possibilities as to how the crypto market will develop in the future, but what is certain is that financial fraud in the crypto market will continue to grow.
