While many cryptocurrency enthusiasts may believe that the virtual and
digital currency market is immune to external happenings and may regulate
itself without any external aid, the reality may be otherwise. The market
forces have failed to remove the bad actors as many would believe, and
cryptocurrency has its own share of hacks and frauds. No FINRA (Financial
Industry Regulatory Authority) type organization overlooks the
cryptocurrency market and the investors may not have any kind of extensive
legal protection while dealing with the crypto-currencies (including
Bitcoin). Cryptocurrency can offer you astounding returns no doubt, but
there are inherent risks (including volatility and absence of regulations)
that the enthusiasts of the digital currency would not talk about. Here is
a look at some of the aspects, platforms and issues (related to
cryptocurrency) that are also real, but few would tell you anything about
1. The Bitfinex thefts
Bitfinex is a well-known cryptocurrency exchange and trading platform.
It also stores the Cryptocurrencies. It is today the largest exchange point
for BitCoins (10% of all trading). The popular exchange has been severely
impacted by hacks in the past years. In 2015, around 1500 Bitcoins of the
exchange were stolen by hackers. The next year, Bitcoins of $72 million
worth were again stolen from the customer accounts of the company. The
grand theft resulted in a 20% decrease in the value of the currency. The
exchange has not issued any reports or details related to the hack until
today. It recovered from the losses by using the accounts (and the funds)
of all the users, which is again deplorable.
2. Investment without client permission
A recent report of Xinhua news agency stated that OKCoin and Huobi ( 2
major cryptocurrency exchanges » in China) invested 1 billion
Yuan into the wealth management products that included Cryptocurrencies,
without asking or informing the customers about it. Further investigations
revealed that a number of small, medium and midsized exchanges use the
customer money to buy the Cryptocurrencies and do not even inform the
respective clients about it, let alone seeking their permission.
3. Money laundering
The absence of regulations makes cryptocurrency the biggest platform for
money laundering. While it may be relatively easier to track the money once
it had entered the cryptocurrency system, the source of the monetary
investment is barely accounted for. A joke within the financial community
that has been popular is that the hackers do not attack the cryptocurrency
exchanges like BTC-e as these are the ideal places to launder all the
stolen or hacked money.
4. The ICO jumble and irregularities
The initial convenience of fundraising via the exchange or sale of the
cryptocurrencies may seem lucrative and relevant. But there is more to the
issue than what it seems. The ICO (Initial Coin Offering) fund-raising also
has the pre-sales rounds where the investors can buy the tokens at a
greater discount. The rate at which the discounts are offered is not
disclosed by the ICO organizers. Also, the initial financial inclusion
within the cryptocurrency financial world requires that the investor should
buy some Bitcoins. The security hence created by the cryptocurrency
organizers does not comply with any of the financial or regulatory laws.
Further, the absence of governance and accountability has also made
cryptocurrency a venue for illicit fundraising.
5. Questionable “Market Cap” accountability
There is no legal, public or private analysis of what is actually going
on in the cryptocurrency world. The superficial reports also do not give
any in-depth views towards the actual fruitfulness of the currency, and how
it can be trusted towards creating a better financial future for all.
Remittances, B2B/B2C transactions, dormant/active customer data, various
kinds of transactions actually occurring, money transfers…! You may not
find any of the information anywhere when you seek it. Bitcoin does not
show the real “Market Cap” value, or the assets and the cash flows. It
also does not provide financial statements of any other kind that can
provide for a thorough and comprehensive inference.
6. Biased reporting
Cryptocurrency has been a favourite of all those with large assets and
incomes to play with. The big media names of the media industry, like Coin
Telegraph or Coin Desk, have now initiated reporting on the cryptocurrency
financial segment, issues and various aspects, through dedicated
publications. But all the big wigs in the reporting business still refrain
from reporting the darker side of things. The articles and reports you will
read will focus on the positives only. While the reputed media and news
houses can provide you with more realistic data (in comparison to the
sponsored content) yet a clean and unbiased view and in-depth analysis are
As the popularity and market value of the cryptocurrency market grows,
more regulations and scrutiny are bound to be levied and followed in
future. LedgerX is one cryptocurrency exchange that is Federally regulated.
While the market is riskier and volatile now, we will see its growth and
stability in near future.