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Analyst Says Multi-Billion-Dollar Ponzi Scheme Suppressed Bitcoin and Crypto Markets

December 19, 2019

Kim Grauer, senior economist at Chainalysis, a leading blockchain security and analysis firm, highlights the three main findings from the company’s latest report on PlusToken.

The alleged crypto scam promised huge returns to investors. The Chainalysis report analyzes the scam’s potential impact on Bitcoin’s price and how the perpetrators might be using over-the-counter crypto trading to engage in money laundering after PlusToken went bust and its app went offline over the summer.

Grauer, who commented on the scandal during an interview with BlockTV, says one of the main reasons for conducting an extensive investigation on PlusToken was due to its sheer size. She confirms that the scammers, arrested in June, allegedly stole at least $2 billion from investors over the past year.

Grauer adds,

“[PlusToken] is one of the largest Ponzi schemes, not just in crypto. The second thing we noticed about this were [issues] surrounding money laundering – not only the size, but how are the criminals moving the money from the PlusToken wallet to off-ramps which are exchanges. And the report focuses specifically on OTC brokers.

We did look at Huobi specifically as it was one of the largest receivers of the PlusToken money.

And then the third was the price. What is the relation between this activity, all of this stolen Bitcoin (BTC) and Ether (ETH), and a few other cryptocurrencies as those funds move to the exit ramps? What is the impact of that activity on the price? Because it is essentially flooding the market with Bitcoin and Ether that needs to be off-loaded and sold very rapidly.”

…

“We specifically looked at Huobi because the most funds went to Huobi. And we saw that when the funds went to Huobi, there would be really large cash-outs in one day, over $30 million in one day, for example. And we would do some regressions, basically. We tried to correlate that with what was happening on the Huobi order books, and what we found was that immediately after a large sell-off of these stolen funds to the OTC brokers on Huobi, there was a statistically significant increase in volatility on these exchanges, which then was related to the price decline.”

Chainalysis’ findings indicate that scammers are using mixers to combine different cryptocurrencies with their illicit transactions in an effort to obscure trails and make it more difficult to trace the origin of the funds.

According to the report, approximately 20,000 Bitcoin from the PlusToken scam, worth around $137 million at current prices, are spread out across more than 8,700 cryptocurrency addresses. Researchers estimate that the scammers have already sold around 25,000 BTC using various exchanges that allow users to conduct OTC trades. Grauer concludes that after analyzing various indicators and streams of data, the PlusToken funds were suppressing the price of Bitcoin over a period time. 

Moving forward, their goal is to monitor transactions and catch individuals who are trying to cash out on the scam.

The company reports that its sophisticated tools, which use a mix of off-chain sleuthing and on-chain intelligence, are rather effective, and despite convoluted and complex transactions, their team can “follow the money.”

Nevertheless, there are blind spots and hurdles, particularly when fraudsters spin up accounts using fake identities. Grauer highlights a need for exchanges to close those compliance gaps.

“Exchanges are trying to come to grips with what their regulatory obligations even are. As they become formalized, they’re going to need to conduct KYC on OTC customers.”

You can check out the interview here.

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