According to the most recent study conducted by Chainalysis, unwitting users spent around $4.6 billion worth of crypto, acquiring them in fraudulent schemes last year which saw the creation of over 1.1 million tokens.
Chainalysis’s study shows that about 25% of these crypto reflected “pump and dump” tendencies, and the vast majority of them were unsuccessful, with their creators stealing $30 million from their victims.
Based on exchange transactions, fewer than 41,000 of the more than 1 million tokens in circulation in 2022 were deemed to have no substantial impact on the cryptocurrency market.
A table showing the analytic breakdown and number of tokens suspected to be fraudulent. Source: Chainalysis
They Were All ‘Rug Pulls’
A “rug pull,” or “pump and dump” scheme, is a sort of crypto fraud. When enough ordinary people purchase into a cryptocurrency, market manipulators “pull the rug” and sell their tokens, making off with the investors’ money.
“Pump and dump schemes have also become common in the crypto world,” analysts from Chainalysis wrote in a report published Thursday. It should come as little surprise to watchers of crypto markets, where huge spikes based on rumors and hype can quickly evaporate.
In 2018, Chainalysis did research on cryptocurrency pump and dump schemes and studied 175 malicious events that occurred between January 2018 and July 2019, discovering that these schemes generated an estimated $825 million worth of trading activity.
Between January 1, 2021, and March 31, 2022, over 46,000 individuals reported cryptocurrency frauds. In that year alone, it was claimed that $680 million was lost to scammers. Throughout the first three months of 2022, another $329 million was lost to fraudsters.
Pump & Dump – Easy To Carry Out?
Chainalysis researchers disclosed that the prevalence of rug pulls is largely attributable to the ease with which bad actors can introduce new digital assets and establish an artificially high price and market capitalization for it “on paper” by populating the initial trade volume and controlling the circulating supply.
According to the researchers, 25%, or over 10,000, of the tokens released in 2022 experienced a price loss of 90% or more during the first week of trade. They emphasized that in the digital currency realm, those proposing initiatives can remain anonymous.
The market has been rocked by many high-profile fraud charges this year, including alleged schemes involving FTX and Celsius, and this latest study on bitcoin scams does little to inspire trust in the industry.
Crypto total market cap at $1 trillion on the daily chart | Chart: TradingView.com
Risks Tied To Crypto Assets
In January, the US Federal Reserve, the Federal Deposit Insurance Corp, and the Office of the Comptroller of the Currency issued a joint statement saying that the risks associated with digital assets should not be permitted to spread to the larger financial system.
According to a national poll done late last year by the Crypto Council for Innovation in Washington, D.C., more than half of cryptocurrency-holding voters want action and protection from fraudsters.
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