The Asia-Pacific Investigations Review 2024: Emerging Trends in Crypto Fraud PDF Free Download
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The Asia-Pacific
Investigations
Review
2024
Emerging Trends in Crypto Fraud
The Asia-Pacic
Investigations Review
2024
As well as daily news, GIR curates a range of comprehensive regional reviews. This volume
contains insight and thought leadership from 18 pre-eminent practitioners in the Asia-Pacic
region. Inside you will nd articles on Australia, China, India and Singapore; on the main types
of cryptocurrency fraud and on how to ‘do’ a multi-jurisdictional internal investigation with all
of the challenges and contradictory requests from various agencies that those can entail.
Generated: February 8, 2024
The information contained in this report is indicative only. Law Business Research is not responsible
for any actions (or lack thereof) taken as a result of relying on or in any way using information contained
in this report and in no event shall be liable for any damages resulting from reliance on or use of this
information. Copyright 2006 - 2024 Law Business Research
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RETURN TO SUMMARY
Emerging Trends in
Crypto Fraud
Gwynn Hopkins, Akanksha Sagar and Nataliya Shokurova
Perun Consultants Limited
Summary
IN SUMMARY
DISCUSSION POINTS
REFERENCED IN THIS ARTICLE
2022 – THE CRYPTO WINTER
IS THIS THE DEATH OF CRYPTO?
WHAT ARE CRYPTO ASSETS?
BITCONNECT, ONECOIN, BITCLUB NETWORK, AXIE INFINITY, PINCOIN, THODEX,
MINING CAPITAL, SUSHISWAP
IS CONSUMER PROTECTION POSSIBLE?
THE CRYPTO CRISIS OF 2022
REGULATORS ARE RUSHING TO KEEP UP
WHAT ABOUT ASIA?
CONCLUSION
ENDNOTES
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IN SUMMARY
Cryptocurrency – it’s the hottest thing in investing. Or it was. With the values of
cryptocurrencies plummeting, regulations tightening and high incidences of fraud, what can
investors do to protect themselves and what are the emerging trends to be aware of?
DISCUSSION POINTS
• What are crypto assets?
• How big is the fraud problem?
• How are investors defrauded?
• Can investors protect themselves from fraud?
• What were the major factors impacting crypto in 2022?
• How are countries dealing with crypto regulation?
REFERENCED IN THIS ARTICLE
• China’s tough stance on crypto
• Global regulatory developments
• Asia regulation
2022 – THE CRYPTO WINTER
With a steady stream of calamities resulting in a signicant downturn in asset prices, burnt
investors are eeing the cryptocurrency market and it is clear that the industry is witnessing
a major slump. The term ‘crypto winter’ was rst used in 2018 when the cryptocurrency
market experienced a considerable downturn, and it made an appearance again in 2022. The
past year has seen the price of popular digital assets such as Bitcoin and Ethereum slide
from record highs. The decline started with the meltdown of TerraUSD (UST), when its price
plunged to 10 cents and, along with its sister coin, Luna, lost almost US$40 billion of value in
a week. Before the crash, Luna was one of the top 10 largest cryptocurrencies on the market.
This event was the catalyst for a severe decline in cryptocurrency prices, with most tokens
losing 50 per cent of their market valuation.
As the prices of various currencies witnessed a free fall, many front runners of the crypto
industry faced collapse. Crypto lender Celsius froze all account withdrawals, while Babel
Finance suspended withdrawals, citing unusual liquidity pressures. The crypto hedge fund
Three Arrows Capital (3AC), which had invested heavily in UST, defaulted on its loan
payments to the crypto lender Voyager and subsequently led for bankruptcy in July 2022.
Voyager, along with other lending platforms such as Genesis Trading, incurred substantial
losses and signicant withdrawals leading it to eventually le for bankruptcy. An article by
CoinDeskin November 2022 stated that cryptocurrency exchange FTX Trading Ltd(FTX) had
signicantly overvalued its token, which accounted for a large portion of assets at Alameda
Research, its sister trading platform. After a failed attempt by Binance to rescue FTX, the
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exchange collapsed due to a surge in customer withdrawals, and FTX led for bankruptcy
within days.
Amid all this turmoil, in January 2023 crypto market capitalisation faced one of its worst
declines, falling 65 per cent from all-time highs in 2021. The result was an urgency among
regulators to tighten legislation and crack down on corrupt and delinquent digital currency
rms. In February 2023, the Securities and Exchange Commission (SEC) launched a series of
enforcement actions against several operators, including Genesis and Gemini, over violating
investor protection laws. The SEC also charged the founder of UST and Luna of misleading
investors, and Sam Bankman-Fried, the founder of FTX, with additional criminal counts.
Crypto-related crime grew signicantly, with the volume of transactions related to criminal
activity sharply increasing. Illicit use of cryptocurrencies hit a record US$20.1 billionin 2022
as transactions involving companies targeted by US sanctions skyrocketed, making up 44
per cent of the year’s illicit activity. To combat this, the EU has drawn up an extensive set of
new regulations for governing crypto, while other nations, such as the US and the UK, are still
considering their options. In Asia, Singapore has established a stronger regulatory regime,
while Hong Kong attempts to tread a ne line between protecting investors and offering
crypto groups a business base.
IS THIS THE DEATH OF CRYPTO?
It seems not, as Bitcoin rebounded to over US$30,000 in April 2023, currently settling around
US$26,000.The surging price comes at a time of deep uncertainty. There are theories that the
price rise is a function of manipulation and propping up. Fears still continue to surround the
security of customer funds, and new crypto investors are pivoting to crypto exchange-traded
funds (ETFs) as a safer entry point to digital assets.
ETFs retain the allure for those investors interested in cryptocurrencies but are new to
the asset class, aiming to give retail investors exposure to changes in digital asset values
without the need to buy or hold them directly. Another trend grabbing the crypto industry
is the use of articial intelligence (AI) crypto tokens. AI cryptocurrencies are tokens that
power AI blockchain platforms such as The Graph and SingularityNET.Users pay with tokens
to use the platforms and access the benets of the integrated AI systems. Identication
technologies are also being explored, as is evident from the news that the CEO of Open
AI,Sam Altman (who is working to obtain funding to create a secure global cryptocurrency
called Worldcoin) is using eyeball-scanning technology to create a global identication
system. These developments suggest that crypto prospects still hold promise.
WHAT ARE CRYPTO ASSETS?
Cryptographic assets are transferable digital representations, designed in a way that
prohibits their copying or duplication. The technology that facilitates the transfer of
cryptographic assets is referred to as a ‘blockchain’. Blockchain is a digital, decentralised
ledger that keeps a record of all transactions that take place across a peer-to-peer
network, enabling the encryption of information. Cryptographic assets and the underlying
technology provide opportunities to digitise a variety of ‘real world’ objects. Cryptocurrencies
are the most commonly known subset of crypto assets, with Bitcoin being the most
prominent.Today we have different kinds of crypto asset, such as non-fungible tokens
(NFTs), synthetic assets, stablecoins and utility tokens.
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The pace of development in the crypto industry has far outstripped regulators’ ability to
respond. With social media, online forums, trading applications and many crypto exchanges,
the potential is high for inexperienced investors to get burnt.
BITCONNECT, ONECOIN, BITCLUB NETWORK, AXIE INFINITY, PINCOIN, THODEX, MINING
CAPITAL, SUSHISWAP
These are some of the largest crypto scams in history, with more than 46,000 people
reportedly losing over US$1 billion in crypto to scams between the beginning of 2021 and the
rst quarter of 2022, according to the Federal Trade Commission.[1] Crypto scams are cons
in which scammers use some tried and some new tactics to steal cryptocurrency. One of
the most common scams is the investment scam, whereby fraudsters trick their victims into
buying cryptocurrency and sending it to them. Among other tactics, scammers impersonate
businesses, government agencies and love interests.[2]
Criminals not only steal cryptocurrency, but they also use it to fund illicit activity. According
to the 2023 Crypto Crime Report by Chainalysis, issued in February 2023, illicit transaction
value rose for a second consecutive year in 2022, hitting a record US$20.6 billion.[3] The
Report classied a wide range of activities as illicit, including transactions linked to child
sexual abuse materials, human tracking, ransomware, stolen funds, terrorism nancing,
scams, cybercriminal administrators, darknet markets and sanctions.[4]
Figure 1: Total Illicit Transaction Value 2017–2022
Source: The 2023 Crypto Crime Report by Chainalysis
Fraudsters are attracted to cryptocurrency transactions as they are pseudonymous and
generally perceived to be dicult to recover.
Typical cryptocurrency transaction methods include:
• purchasing cryptocurrency through a cryptocurrency exchange;
• receiving cryptocurrency as payment for legal or illegal transactions;
• purchasing cryptocurrency for cash at a cryptocurrency ATM; and
• exchanging at currency for cryptocurrency through informal peer-to-peer
transactions.
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Cryptocurrency transfers cannot be reversed, making them dicult to trace, and with most of
the general public still unfamiliar with how crypto works, cryptocurrencies present a number
of opportunities for fraudulent activity. Some of the most common types of crypto scams
are as follows.
Bitcoin Investment Schemes
Scammers contact investors claiming to be seasoned investment managers. They are
basically Ponzi schemes whereby managers claim to have made millions investing in
cryptocurrency and request an upfront fee from potential investors.
Ransomware Or Blackmail And Extortion Scams
Ransomware starts with cybercriminals entering a system and encrypting data, then offering
a decryption key if the victim agrees to pay a ransom through cryptocurrency. Extortions by
ransomware attackers were down 40.3 per cent to US$456.8 million in 2022 from US$765.6
million in 2021.However, the decline is not attributed to a drop in attacks but rather on
account of victims refusing to pay ransomware attackers.
Figure 2: Total Ransomware Value 2017–2022
Source: The 2023 Crypto Crime Report by Chainalysis
Rug Pull Scams
Rug pull scams occur when investment scammers pump up a new project, NFT or coin to
get funding and promise massive returns to draw in hefty investments. However, the game
changes as the funds from the project are drained abruptly. This type of scam is dubbed a
‘rug pull’. A total of US$26 billion was lost in over 600 cases to cryptocurrency and NFT rug
pulls between the beginning of 2011 and June 2023.[5]
Romance Scams
There has been a recent increase in romance scams, in which the fraudster contacts the
victim online, builds their trust, then solicits personal information.
Fake Job Listings
Scammers will impersonate recruiters or job seekers to get access to cryptocurrency
accounts. The ‘jobs’ they are hiring for are often in the crypto eld, including crypto mining
and recruiting other crypto investors. The job seeker will have to make a payment in crypto
to get started.
Fake Cryptocurrency Exchanges
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Fake and unregulated cryptocurrency exchanges act as a legitimate exchange to commit a
scam. When a victim attempts to withdraw funds, obstacles appear, such as unannounced
fees and taxes to be paid.
Flash Loan Attacks
Flash loans are loans for short periods of time with the money-making trades carried
out in one transaction and then the ash loan is repaid. These loans are popular in the
cryptocurrency market as traders use funds to buy tokens on one platform with a lower price,
and then sell that asset immediately on a different platform to make money. In February
2023, Platypus Finance was victim to a ash loan attack, resulting in a US$8.5 million loss.
IS CONSUMER PROTECTION POSSIBLE?
There are some ways to protect current or future investments.
• Trustworthy digital payment token service providers: investors should research their
cryptocurrency exchanges before they buy crypto on them. Key parameters for
choosing an exchange include that it: should provide relevant risk disclosures to
retail consumers and follow proper segregation of customer assets; has processes
for complaints handling; has not been hacked; and maintains high availability and
recoverability of its critical systems.
• Secure crypto wallets:storing crypto in a secure wallet should offer protection.
Other security strategies include maintaining strong passwords, spreading
cryptocurrencies across different wallets, keeping the seed phrase[6] safe in an oine
location, using two-factor authentication and, if technical skills allow, holding both hot
and cold wallets.[7]
• Blockchains: there is constant risk of a 51 per cent attack, which means if a miner or a
group of them get more than 50 per cent of the networks, they can control the mining
hash rate.
• Know-your-customer (KYC) requirements: many countries now require currency
exchanges to comply with KYC requirements or at least maintain records of
customers’ identities. This allows fraud examiners and legal advisers to track the
money through court orders or subpoenas.
• Regional regulation: the absence of a unied global regulatory frameworkis also
appearing to be a threat. While the EU has enacted strict regulations to limit the
use of cryptocurrencies, some countries (such as El Salvador) have fully embraced
cryptocurrencies.
• Comprehensive white papers:investors should review every cryptocurrency’s white
paper before investment. The white paper details the standard for every currency, the
crypto’s use cases and scalability and the creator’s plans for the future.
THE CRYPTO CRISIS OF 2022
UST
Terraform Labs endeavoured to utilise blockchain technology to construct a decentralised
nance network. Do Kwon, a Stanford University graduate and a former engineer at Apple
and Google, launched UST as an algorithmic stablecoin in 2018.
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UST was supported by Luna, which functioned as a parallel oating rate cryptocurrency and
was responsible for maintaining a peg of US$1. In March 2022, the value of Luna reached
a peak of approximately US$120 per token, propelled by the potential of the UST/Luna
ecosystem amid a surge in the cryptocurrency market.
In early May 2022, investors simultaneously withdrew their funds due to a loss of condence
in the tokens. Within a fortnight, the Terra stablecoin and Luna token continued their steep
decline, leading some media sources to classify it as a potential Ponzi scheme or rug pull
scam.
Whether a massive UST sell-off was a reaction to rising interest rates or there was a
malicious attack on the Terra blockchain, is a matter of contention. A research report by
Nansen, a company that analyses blockchain data, investigated the UST death spiraland
it dispels the notion that a solitary attacker was responsible for the depeg. Do Kwon
acknowledged the potential of blockchain and decentralisation, motivating him to reorganise
the coin and launch a new version.
In September 2022, South Korea issued an arrest warrant for Kwon, while Interpol reportedly
issued a ‘red notice’ for him. The SEC began an investigation of Terraform Labs in June 2022
to determine whether the marketing of the UST stablecoin violated federal regulations.
In September 2022, a US$56.9 million class action was led in Singapore against Kwon,
Terraform Labs, Nikolaos Alexandros Platias and the Luna Foundation Guard. In February
2023, US nancial regulators charged Do Kwon and TerraForm Labs with ‘orchestrating a
multi-billion-dollar crypto asset securities fraud’.
Ethereum Fusion
Following UST’s demise, Ethereum, the dominant blockchain for smart contracts, underwent
a signicant transformation by switching from a proof-of-work to a proof-of-stake consensus
system. This change reduced energy consumption by a remarkable 99.5 per cent, addressing
concerns about blockchain’s environmental impact and improving network ecacy..
However, the shift to proof-of-stake also exposed Ethereum to potential regulatory
challenges, as proposed bills in the US Congress sought to impose strict regulations on
this type of blockchain. This severely impacted Ethereum’s innovation potential as a leading
blockchain hub.
3AC Collapse
3AC was launched in 2012 by classmates Su Zhu and Kyle Davies, focusing on emerging
market currency trading.At one stage, the fund had an estimated US$10 billion under its
management.
As of the end of 2020, 3AC became the largest holder of Grayscale Bitcoin Trust (GBTC)
shares, with a position then worth US$1 billion,as the hedge fund could buy shares at a
discount in exchange for Bitcoin.Shares were sold to ordinary traders at a premium price.
However, with the advent of ETFs on Bitcoin in Canada, GBTC lost signicant value.
3AC had invested in a wide range of instruments and projects, so its success was directly
dependent on the growth of the crypto market. In addition to investor funds, other loans were
also applied, which were invested in Luna and other less liquid coins.
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As a result of these extremely unsuccessful transactions and the collapse of UST and Luna,
a liquidity crisis arose. Kyle Davies tried to take out a new loan from Genesis in mid-June
2022 to cover his obligations. Sam Callahan of the BTC Savings Plan suggests that, at some
point, the crypto fund turned into a Ponzi scheme, as the founders resorted to nding new
investors and lenders as losses mounted.
3AC was ordered to liquidate in June 2022 by a court in the British Virgin Islands,and on 1
July 2022 it led for bankruptcy in a New York court, owing over US$3 billion to creditors.
FTX Collapse
In early November 2022, CoinDesk published an article that cast serious doubts on the
stability of the FTX crypto exchange.The article referred to a condential document obtained
by the news site, revealing that approximately 40 per cent of the assets held by Sam
Bankman-Fried’s personal hedge fund, Alameda Research, consisted of FTT tokensissued
by the FTX exchange. Alameda’s total assets sat at US$14.6 billion, with the FTT tokens
representing nearly 90 per cent of the company’s net assets.
Given the limited marketability of such a large amount of FTT tokens (in excess of US$5.8
billion), any liquidity requirements for repayments could lead to a run on Alameda’s balance
sheet and probable bankruptcy.
What Did FTX Have To Do With Alameda?
Both FTX and Alameda Research were majority-owned by Sam Bankman-Fried. With the
collapse, previously undisclosed details regarding the relationship between these two
companies came to light.
Lucas Nuzzi, head of research at Coin Metrics, conducted an analysis using open blockchain
data and determined that the FTX exchange provided Alameda with US$4 billion in
emergency funding using FTT tokens (conveniently issued by FTX itself).If Alameda were
to face bankruptcy, the repayment of loans issued by the FTX exchange would be highly
uncertain.
Panic ensued among FTX clients, with withdrawal volumes from the crypto exchange
reaching US$6 billion by 8 November 2022.The FTT token had already experienced an 80
per cent decline since the beginning of the month. The exchange imposed restrictions on
withdrawal amounts.
FTX’s largest competitor, Binance, announced its decision to liquidate the remaining FTTon
its books, although within a few days it also said it wanted to fully acquire FTX.com.However,
after a review of FTX’s nances,Binance withdrew its offer.
Alarming revelations included reckless lending practices, with FTX’s founder channelling over
US$10 billion of customer funds into high-risk bets, while the CEO of Alameda Research
displayed a lack of understanding regarding due diligence and risk management.
Further misconduct occurred behind the scenes, as nearly US$500 million was discreetly
transferred out of the FTX exchange, indicating premeditated actions by those involved.The
failure of FTX triggered investigations by the Justice Department and the SEC into whether
FTX inappropriately utilised customer cash to prop up Alameda. Sam Bankman-Fried was
detained in the Bahamas on 12 December 2022 for defrauding investors and lying to them.
He faces eight criminal charges and up to 115 years in prison if convicted.
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Impact On Bitcoin Price
Between 7 November and 8 November 2022, Bitcoin plunged by 22 per cent in less than
a day as investors struggled to gauge the impact of a potential FTX collapse. It fell below
US$16,000 multiple times in the subsequent weeks.[8]
Figure 3: Bitcoin Price History April 2022–April 2023
Source: https://www.coingecko.com/en/coins/bitcoin.
REGULATORS ARE RUSHING TO KEEP UP
As cryptocurrency has evolved from a speculative investment to a new asset class, it has
prompted governments to explore ways to regulate it. Different countries have different
approaches, adding to the lack of clarity surrounding crypto regulation.
In the US, the crypto regulations are full of complications, as there are several regulators in
charge of overseeing crypto companies. The Biden administration signed an executive order
in March 2022 calling on federal regulators to assess the broad risks and benets offered by
cryptocurrencies. In January 2023, the administration released a roadmap to mitigate crypto
risks.
The SEC has already moved towards regulating the sector with its widely publicised lawsuit
against Ripple, alleging that it raised more than US$1.3 billion by selling its native token, XRP,
in unregistered securities transactions. More recently, the SEC has been targeting exchanges
such as Coinbase and Binance over their crypto products.
The EU has been more forward looking. It recently ratied the rst cross-jurisdictional
regulatory and supervisory framework for crypto assets.The law aims to ensure that crypto
transfers can always be traced, and suspicious transactions blocked, as is the case with any
other nancial operation.
The UK is planning to introduce a sweeping new regulatory regime that aims to bring rules
governing crypto tokens in line with those already in place for traditional nancial assets
such as stocks and bonds. However, the Financial Conduct Authority’s current regulatory
remit over crypto is limited to making sure that crypto rms that operate in the UK comply
with anti-money laundering and counter-terrorism legislation.
WHAT ABOUT ASIA?
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In contrast to the rest of the world, countries in the Asia-Pacic region have demonstrated
widely differing attitudes to the regulation of crypto assets.
China’s Crypto Shutdown
China’s crypto ban in September 2021 targeted three areas of digital asset dealing:
• Bitcoin mining: after China banned Bitcoin mining, it became illegal for Chinese
residents and businesses to mine cryptocurrencies;
• crypto trading and transactions: Chinese investors are not permitted to buy, sell or
transact in digital currencies such as Bitcoin or Ethereum; and
• employment in the crypto sector: if any tech companies or entrepreneurs deal with
cryptocurrencies, they could face signicant penalties.
Although it is illegal to use and buy crypto in China, there are no specic policies against
holding digital assets such as Bitcoin, Dogecoin or Ethereum. However, it seems that Bitcoin
is still being mined in China. The Cambridge Bitcoin Electricity Consumption Index noted
that mining activity in China appeared on Bitcoin’s network in September 2021. In early 2022,
China accounted for more than 20 per cent of Bitcoin’s hash rate, which is second only to
the US. Mainland China was also the world’s fourth-largest crypto market in the year up to
July 2022.
China has also been working on its ‘digital yuan’ currency, a state-sponsored virtual currency
to track all currency movements. The digital yuan will be distributed by the People’s Bank of
China to commercial banks, and commercial banks will be responsible for taking the digital
currency into the hands of consumers. Consumers will have a service whereby they can
exchange coins for digital yuan.
Is Hong Kong The New Frontier For Crypto?
According to the Worldwide Crypto Readiness Report, Hong Kong was the most
‘crypto-ready’ in 2022, topping all categories including the number of blockchain start-ups
per 100,000 people and the number of crypto ATMs proportional to the population. Notably,
this ranked it ahead of the United States and Switzerland.
The Hong Kong government has been relatively supportive of the sector and is more ‘crypto
friendly’ than mainland China. The Hong Kong government ‘is very serious about building
an international virtual asset centre’, said Xiao Feng, chair of Hong Kong crypto exchange
HashKey, which saw 13,000 people attend the rst day of its Hong Kong Web3 festival.
HashKey received a licence to operate in Hong Kong in November 2022, making it one of
two licensed crypto exchanges in the city (alongside rival exchange OSL). Other companies
that plan to establish or expand their presence in Hong Kong include exchanges KuCoin,
Gate.io and Huobi, which announced plans in February 2023 to move its headquarters from
Singapore.
The Hong Kong government also announced its funding support to the industry by
earmarking US$6.4 million for developing its Web3 ecosystem. Hong Kong’s nancial
secretary, Paul Chan, also announced the formation of a task force dedicated to the
development of virtual assets, composed of members from the policy bureau, regulatory
bodies and the industry.
Acceptance Of Crypto As A Currency In Gatecoin
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In a ruling in March 2023,the Hong Kong High Court conrmed that cryptocurrencies
constitute ‘property’ under Hong Kong law and are capable of being held on trust. The ruling
was made in a legal dispute involving the crypto exchange Gatecoin, which collapsed in 2019.
The court said that crypto assets have property attributes and are ‘capable of being held on
trust’.
In light of the recent high-prole collapses of some major cryptocurrency exchanges, this
decision provides helpful clarity on the legal treatment of cryptocurrencies in Hong Kong,
particularly in a winding-up scenario. Law rms have noted that the new ruling could provide
insolvency professionals with more clarity on crypto assets and means that crypto has
property characteristics similar to other assets such as stocks.
As Hong Kong pushes to position itself as a global virtual asset hub, disputes surrounding
crypto assets and associated technologies will only become increasingly common.
What Did Singapore Do?
The Monetary Authority of Singapore (MAS) is focused on building a responsible and
innovative digital asset ecosystem.Its goal is to reduce potential consumer harm from
cryptocurrencies and associated services by attracting businesses with excellent risk
management capabilities and value propositions.
MAS encourages the growth of the digital asset ecosystem by supporting initiatives such as
tokenisation and distributed ledgers, but also warns against the risky practice of speculation
on cryptocurrencies.However, MAS is also taking measures to manage the risks of digital
assets and restrict retail access to cryptocurrencies.
Cryptocurrency Is Not Money
A recent judgment in Singapore involving 3AC set a precedent for the legal status of
cryptocurrencies. Algorand Foundation led an application to wind up 3AC in the Singapore
High Court, seeking to recover US$53.5 million in cryptocurrency. The central issue was
whether cryptocurrency could be considered a sum of money, which would determine
Algorand’s status as a creditor and the validity of the application. However, the court rejected
Algorand’s argument, stating that cryptocurrency is not considered ‘money’ for the purposes
of a winding-up application, as determining its status would require extensive examination
and was not appropriate in the context of insolvency.
CONCLUSION
As a result of the recent crises and collapse of some of the largest independent crypto
exchanges, investors have lost billions of dollars. This has had a drastic impact on consumer
business acceptance of new ideas and on the choice of businesses and investments, and
has implications for policy and regulations. The majority of the bad actors have been taken
out, and the price and market structure of Bitcoin had rebounded to a solid place as at the
time of writing.
The failures of FTX, Celsius and Terraform Labs helped differentiate unregulated, centralised
players that ran faulty and fraudulent businesses. It also signied the industry’s maturation,
which will continue to advance as more regulations are implemented.
Many of the eruptions of 2022 would not have occurred if the digital assets sector had
appropriate corporate governance structures in place. The absence of transparency and
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weak governance, together with a belief that crypto is fundamentally unique and therefore
cannot be addressed with time-tested approaches, are major contributors to the industry’s
downfall.
With the domino effect of the crypto crises resulting in crypto-service companies ling for
bankruptcy, there is a need for the crypto ecosystem to align its activities closer with that of
the traditional nance industry, beneting from the lessons learned over centuries.
The major disruption caused in the past year has sparked an interest from market regulators
to ensure monetary and nancial stability as these assets become more widely adopted.
The choices for regulators include an opt-in or pilot regime, a risk-based regime, a catch-all
regime or a blanket ban. While a risk-based regime is likely the preferred approach, the
common objective across all jurisdictions is the protection of users, market stability, the
minimising of regulatory arbitrage, and a nimble and agile regulatory framework that
eciently accommodates the rapid market development and nancial innovation that is
prevalent in the class of crypto assets. Despite a troubled 2022, digital assets continue to
evolve and remain a potent source of innovation, and market participants anticipate greater
integrity in the crypto asset market in 2023.
Endnotes
1 https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/
reports-show-scammers-cashing-crypto-craze#crypto1. Back to section
2 https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams.
Back to section
3 https://go.chainalysis.com/2023-crypto-crime-report.html. Back to section
4 ibid. Back to section
5 https://www.comparitech.com/crypto/cryptocurrency-scams/. Back to section
6 A seed phrase is a collection of 12 to 24 random words generated by a wallet service,
which needs to be entered in the exact same sequence as received when signing up.
Back to section
7 Hot wallets can be logged into from anywhere at any time but come at a greater risk of
data theft and breaches. Cold wallets are oine wallets, not connected to the internet,
such as a USB device. However, if you lose your oine wallet, there is no ‘forgot your
password’ option to recover it. Back to section
8 https://www.cnbc.com/2023/01/17/bitcoin-has-now-recovered-all-its-losses-si
nce-ftx-collapsed.html. Back to section
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Gwynn Hopkins ghopkins@perunconsultants.com
Akanksha Sagar asagar@perunconsultants.com
Nataliya Shokurova nshokurova@perunconsultants.com
7/F, Hollywood Commercial House, 3-5 Old Bailey Street, Central, Hong Kong
Tel:
(+852) 2887 8020
https://www.perunconsultants.com
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