Could busts trigger final countdown for crypto?
As dark web criminals run scared, Bitcoin experts fear inexperienced investors ‘might lose everything’
Izzy is a tech genius who has invented her own cryptocurrency – GenCoin – that she says ‘will change the world’. She developed it after her poor Cuban family fell victim to loan sharks when their restaurant business began to fail and banks wouldn’t lend them any money. GenCoin will change all that, she says, by creating an endless supply of money that poor people everywhere can freely access so they won’t be victims of the heartless global monetary system.
GenCoin – and a new ‘dark web’ that Izzy invents practically overnight – is a boon for drug dealing, enabling Izzy and her backers, including a Haitian gangster, to engage in lots of gun-play, explosions and car chases.
Yes, you’ve probably guessed: GenCoin is not the latest ‘crypto investment’ opportunity but the premise to a new series on Netflix called StartUp.
It’s all nonsense of course, but great fun and well-worth a watch. There’s also more than a germ of truth in it about what drives the craze in crypto – and why it came to a shuddering, if possibly temporary, halt this
‘Crypto’s crime links seem to add to its cool cachet’
week. Crypto has long been linked to crime but far from this putting younger people off, it seems to add to its ‘cool’ cachet. It also adds to its value, in fact some might say its usefulness to criminals constitutes a major element of its real value.
As analysts never tire of telling us, crypto has no intrinsic value. And it has no use, apart from being the new ‘cash in a brown envelope’ for corrupt and criminal transactions.
Is it a coincidence that Bitcoin’s phenomenal rise in value from practically zilch in 2009 to a total market capitalisation of $660bn midweek has corresponded with the rise of the dark web, an alternate internet of supposedly untraceable and often criminal transactions in guns, drugs, porn and money laundering?
And is that value starting to unravel as authorities clamp down – and its usefulness and appeal for crime and tax evasion begins to evaporate?
In fact, neither crypto, nor the dark web itself, are traceless. Quite the opposite, especially Bitcoin.
Izzy tells us in StartUp that the dark web was invented so US security services could keep an eye on criminals and terrorists. It is monitored closely by their agencies, although most illicit activities are left alone.
The very basis of Bitcoin is traceability. It’s secure because every Bitcoin transaction is logged on what is called the ‘blockchain’, a
permanent record. Transactions can be traced, with some difficulty, although mostly they aren’t.
Ruthless US security agencies are quite capable of turning a blind eye to dark web and crypto transactions – until they want to.
This week we saw what they can do – and how technology can also be
a trap for crime gangs. In one instance, police in 16 countries arrested more than 800 people who used an encrypted messaging app that was developed and deployed by the FBI. Included in the haul were over 32 tonnes of drugs, 250 firearms, 55 luxury vehicles plus €40m in cash and various cryptocurrencies.
Also this week, millions of dollars in Bitcoin ransom, paid in a recent cyber attack on the US Colonial oil pipeline was recovered by US authorities. The move sends out a signal that crypto isn’t safe for criminals which could damage its value, especially Bitcoin.
Bitcoin plummeted by the biggest drop in 10 days, although it later bounced back, as it often does.
But could a continuing clampdown bring crypto down to earth?
The big question is whether this week’s dip could be a precursor of worse to come for Bitcoin, as some analysts surmise.
The largest cryptocurrency is ‘dangerously approaching the $30,000 level’ amid growing fears of more regulation in the US particularly, according to Edward Moya, senior market analyst with Oanda Corp. ‘A break of $30,000 could see a tremendous amount of momentum selling.’
Some investment experts warn that the $660bn midweek Bitcoin phenomenon carries all the hallmarks of a bubble about to burst — with inexperienced investors at risk of losing everything.
There are now more than 1,600 cryptocurrencies such as Bitcoin and Ethereum, and adverts urging people to invest can be seen everywhere.
But watchdogs have repeatedly warned that those investing in volatile cryptocurrencies should be prepared to lose all of their money.
Such investments are not regulated, so those whose money disappears cannot get compensation or complain to the financial ombudsman.
Investors have been lured into buying cryptocurrencies after hearing staggering success stories — from people who’ve paid for luxury holidays with their gains to those who have got on the property ladder with profits made from trading Bitcoin.
But some investment experts say cryptocurrencies are overpriced and will inevitably crash — leaving those holding them to suffer devastating losses.
Neil Lovatt, commercial director at Scottish Friendly, says he is seeing the same behaviour he saw before the dotcom bubble burst in the early 2000s. He says: ‘No one ever talks about the losers. It’s all part of a bubble culture and everyone obsesses over the winners – the focus is all on the wrong place. It is a classic example of a bubble.
‘Crypto is valuable only because other people think it is valuable. Everyone has a very good convincing, long-term economic argument. Eventually something happens to bring people back down to earth.
‘There are more than enough historical examples of this happening in generation after generation and this is no different. Crypto is going to burn a lot of people.
‘A lot of people are going to lose out and badly. The thought of someone putting money that matters to their future into cryptocurrency absolutely petrifies me.’
The uncertainty and extremes of the value of cryptocurrency mean many think investing in it is no different to gambling.
Specialist rehab centre Castle Craig in Scotland has treated close to 100 people now for addiction to trading in cryptocurrency. Therapist Tony Marini says those susceptible to addiction could easily be lured by the highs and lows of cryptocurrency trading. He says one client he treated lost £17m over five years.
He says: ‘I had somebody who could not put his phone down for 10 seconds. When his wife tried to take his phone off him he started sweating and shaking. It is exactly the same as what a normal gambler goes through. When someone crosses the line into addiction, you cannot go back.’
Of course there are plenty of success stories that encourage others into what many regard as little more than a pyramid scheme. After the Covid crash, Bitcoin fell to less than $5,000, so if you bought then, and sold at around $60,000 a year later you would have been up more than tenfold.
But others bought in at $60k only to see their crypto stash crash to around $35k midweek. However, Bitcoin keeps bouncing back and supporters rightly point out that so-called ‘real money’ increasingly has no intrinsic value either. All that’s backing the euro is a relatively small pile of gold – useful for making jewellery – and potentially unrepayable government and company debt that it is buying with newly-minted money at a jaw-dropping rate to jumpstart the economy.
At least there is a finite amount of Bitcoin, which requires a massive investment in time and energy to create, whereas trillions of extra euro, dollars and yen are being printed in an increasingly desperate effort to cope with repeated crises by the world’s central banks.
‘A lot of people are going to get burned’