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Bitcoin’s crypto-nite wanes as illicit activity falls

Cryptocurrency-related crimes are falling. This is partly because the digital currency rose to unprecedented heights in 2020.

According to a recently released report by blockchain data firm Chainalysis, last year the illicit share of all cryptocurrency activity fell to just 0.34% — or $10-billion in transaction volume. This is down from 2.1%, or about $21.4-billion, in 2019.

The percentage of illicit activity fell because overall cryptocurrency economic activity nearly tripled between 2019 and 2020, the report notes.

Though crypto wasn’t immune to the early hits of Covid-19 in 2020, the digital currency’s emergence as a possible safe haven asset caused its price to rally to historic heights by the end of the year. Unlike traditional currencies, crypto is created, distributed, traded and stored using a decentralised digital ledger called a blockchain

Bitcoin took more hits in the first month of 2021, but recently hit a new all-time high price of almost $50 000.

Cryptocurrency scams were especially frequent in 2019, representing about 54% of illicit activity, the Chainalysis report shows. Scams still accounted for most crypto­currency-related crimes in 2020, but the amount of money lost to them was significantly lower.

The Mirror Trading International (MTI) scam was the most brutal in 2020, the report notes. The collapse of the illegal Stellenbosch-based bitcoin trading scheme saw investors losing billions. More than half of the traffic to the MTI website, which promised to grow investors’ bitcoin using foreign exchange trading software, was from South Africans.

In its investigation into MTI, the Financial Sector Conduct Authority (FSCA) found that the entity contravened several laws. MTI publicly denied the FSCA’s allegations.

In December, the FSCA filed criminal charges against the company’s directors. Since then, MTI customers have complained they can no longer access or withdraw funds deposited to the platform.

The Chainalysis report notes that ransomware — a type of malware that holds a user’s system or personal files for ransom — rose dramatically in 2020. The total amount paid by ransomware victims increased by 311% in 2020 to reach nearly $350-million worth of crypto­currency. No other crime had a higher growth rate.

This explosion in ransomware may be a result of new vulnerabilities experienced by organisations instituting work-from-home measures. Because ransomware sometimes goes unreported, overall crypto­currency crimes in 2020 might be higher than estimated in the report. 

The FSCA has continually warned South Africans about the dangers of cryptocurrency investments. Earlier this month, the authority released a statement saying it has received many complaints by members of the public who have lost their savings through crypto scams.

“Crypto-related investments are not regulated by the FSCA or any other body in South Africa. As a result, if something goes wrong, you’re unlikely to get your money back and will have no recourse against anyone,” it said.

The FSCA further notes that “the high risks already inherent in crypto assets” is compounded by unregulated firms that promise high rewards but fail to highlight the potential downside of these investments.

In the first move to regulate crypto­currencies in South Africa, in November the FSCA published a draft declaration declaring crypto assets financial products. This means that any person giving advice or rendering intermediary services relating to crypto assets must be authorised as a financial services provider and comply with the Financial Advisory and Intermediary Services Act.

Moves towards regulation have been welcomed by some, who see it as a sign that the existing financial infrastructure is embracing crypto.

Earlier this year, Marius Reitz, general manager for Luno in Africa, South Africa’s largest cryptocurrency exchange, told the Mail & Guardian that regulations could trigger greater trust in the digital assets.

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Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.

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