Crypto fraud has always been a problem, but a new report issued by blockchain analysis firm Chainalysis shows just what a big issue it’s become. According to the document, nearly 25 percent of the digital tokens introduced in 2022 were scams designed to make off with investor funds.
Chainalysis: Most Tokens in 2022 Were Phony
Several of the tokens analyzed in the Chainalysis report showed signs of being pump-and-dump schemes. This involves the developers or executives of a crypto asset talking it up and getting investors interested. From there, they plunk their money into the token after being subjected to fear of missing out (FOMO). Eventually, so many investors get involved that the price of the token in question rises to a top-of-the-line level.
This is where things get hairy. The developers behind the asset see how much money’s been made. They stop minting the token, shut down the operation, and run off with the cash. Before investors realize what’s going on, the executives in charge have made their way to Tahiti and are living it up on a beach somewhere. It’s a disgusting situation that sees many innocent traders fall victim to malicious greed.
In a statement, Chainalysis explained:
Unfortunately, pump and dump schemes have also become common in the crypto world. This is largely due to the relative ease with which bad actors can launch a new token and establish an artificially high price and market capitalization for it ‘on paper’ by seeding the initial trading volume and controlling the circulating supply. Additionally, teams launching new projects and tokens can remain anonymous, which makes it possible for serial offenders to carry out multiple pump and dump schemes.
The company said that pump-and-dump schemes are very easy to pull off and that they have arguably hurt and hindered the reputation of the crypto industry. The report says:
Pump and dump schemes are uniquely destructive in the cryptocurrency world due to the ease with which new tokens can be launched and the social media-driven nature of crypto investment news and discussion. Many believe that cryptocurrency is approaching an inflection point that could spark mass adoption, but that could be difficult if the public perceives cryptocurrency as rife with pump and dump schemes designed to prey on newcomers.
There Were Many Red Flags to Be Seen
The report discusses more than one million separate assets, all of which came to the market in 2022. This should have been a major red flag to most investors as 2022 was arguably the biggest bear year in question, and the crypto winter that stemmed from it brought many traders into the doldrums.
Thus, the idea that the companies chose this time to put their projects out despite regular signs that things weren’t doing well should have rung a few negative bells.