Crypto Alert: A US Billionaire Warned There Will Be Another FTX-Like Scam

Mark Cuban USA TODAY Sports
Mark Cuban USA TODAY Sports

The billionaire and crypto fan Mark Cuban warned that another scandal will be recorded around digital currencies, like the one that shook the financial world with the resounding fall of the FTX platform.

According to The Street, “in recent months, the cryptocurrency industry has been plagued by numerous scandals, which have sharply increased skepticism and mistrust among the general public and spurred more calls for regulators to intervene.”

“One aspect common to all these crypto scandals is that the big names and players in the industry are thrown into the mess. No one is immune,” the article stated.

In this regard, he recalled that “it all started last May when the sister cryptocurrencies Luna and UST, or TerraUSD, collapsed after UST lost its parity with the dollar.” These cryptocurrencies are tied to more stable assets, such as the US dollar or gold. “But UST was an algorithmic stablecoin, backed not by dollar reserves but by its sister asset, Luna.”

“This disaster sparked a credit crunch that proved catastrophic for many companies, including hedge fund Three Arrows Capital, or 3AC, which found itself unable to meet its payments to crypto lenders Celsius Network and Voyager Digital,” The Street recalled.

For this reason, “3AC was forced to liquidate. Celsius and Voyager filed for Chapter 11 bankruptcy in the United States.

Sam BankmanReuters
Sam BankmanReuters

“The decoupling of the UST coin from Terra and the collapse of Celsius and 3AC led to massive losses for investors: $20.5 billion in the case of UST and $33 billion in the case of Celsius and 3AC,” according to the Blockchain security company Chainalysis.

“This crisis mainly revealed the links and exposure of crypto companies to each other, such as banks during the 2008 financial crisis. The other lesson was the lack of transparency of centralized crypto companies, which are mostly unregulated,” he stated.

“This opacity created another situation that would cause FTX to implode overnight a few months later,” he noted.

In this regard, he recalled that “the cryptocurrency exchange and its sister company, Alameda Research, a hedge fund that also serves as a trading platform, became the companies through which its founder, Sam Bankman-Fried, took advantage of the Confidence crisis in the cryptocurrency industry.

Thus, “he consolidated power and became the new strongman of the crypto space; Bankman-Fried used the two companies to bail out other struggling companies, but as it later became clear, some of these deals were questionable, like the one he made with lender BlockFi. Less than three months later, the Bankman-Fried empire went bust.”

Luna cryptocurrency.  (photo: Bitnovo Blog)
Luna cryptocurrency. (photo: Bitnovo Blog)

“Regulators accused the former trader of defrauding and conspiring to defraud FTX clients and investors. It will take time to determine exactly what happened, but funds from FTX clients appear to have been mixed with Alameda’s and used illegally in high-risk transactions.”

According to Chainalysis, the crash has caused $9 billion in losses for FTX clients, but this number does not take into account potential losses for people who deposited their funds on the exchange. “The likelihood of these investors getting them back is unclear,” The Street noted.

In this context, “for billionaire and cryptocurrency investor Mark Cuban, it is a question of when, not if, there will be another scandal.”

“This new scandal, he stated, will appear in the form of an implosion of the so-called laundering exchanges, according to him, on the centralized exchanges.”

“I think the next possible implosion is the discovery and removal of wash trades in the core trades,” the Dallas Mavericks owner told The Street in an email interview. “Supposedly there are tens of millions of dollars in trading and liquidity for tokens that have very little utilization. I don’t see how they can be so runny.”

“A wash trade, an illegal practice, consists of creating an artificial interest around a financial product, a cryptographic token or a currency in this case, in order to make a profit. This form of pump and dump scheme is widespread in the cryptocurrency industry.”

“Basically, a scammer/trader buys and sells the same tokens, creating artificial trading volumes around that cryptocurrency. The scammer encourages positive social media comments about the token, giving other merchants the impression that the token is popular and in high demand,” he noted.

In turn, “that generates more interest in the token, raising its price. The scammers then liquidate their positions at the peak of demand.”

“Wash Trading (is) making, or intends to make, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s position in the market,” the Futures Trading Commission said. of Commodities of the United States.

“While many trade washes have occurred in traditional finance, the crypto space is particularly ripe for the practice because nearly 13,000 cryptocurrencies are listed,” according to data firm CoinGecko.

“Scammers have to make one or the other token stand out from that pack so they can participate in wash trading.”

As an example, according to a 2022 Forbes magazine study of 157 centralized cryptocurrency exchanges, “more than half of bitcoin-related trade volumes are fake.”

“More than half of all reported trade volume is likely to be false or uneconomic,” the magazine concluded, adding that it “estimates global bitcoin daily volume for the industry was $128 billion on June 14.” . That is 51% less than the $262 billion that would be obtained by taking the sum of self-reported volume from multiple sources.”

“Opacity is the keyword and raises even bigger questions about data related to trading volumes of less popular and less exposed cryptocurrencies,” he noted.

“And this question in turn raises that of the solvency of certain centralized cryptocurrency exchanges. They are operating more than 560 exchanges,” according to CoinGecko.

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