The news earlier this month that Google was to follow Facebook and ban all ads for cryptocurrencies wasn’t entirely unexpected. However, it did say much about the way such innovative technology is being misused.
The UK comedian and U.S. TV host John Oliver of Last Week Tonight fame, sought to explain cryptocurrencies on his show recently. In doing so he squeezed many gags and observations into his slot. He opened with a quote that will apply to the vast majority of people. He said the show about cryptocurrencies was all about “Everything you don’t understand about money, combined with everything you don’t understand about computers.”
This statement sums up the lack of knowledge and understanding of digital currency for many of us.
Google’s issue with cryptocurrencies is straightforward. There are those out there who are deliberately misleading investors into investing and gambling on such currencies. Many of these investments are as dubious as they come. In other words, Google has found itself facilitating questionable investments and it is Google’s customers who have fallen foul.
Facebook had already banned such content, saying that most cryptocurrency advertisers were not “operating in good faith” and were “frequently associated with misleading or deceptive promotional practices.”
Those of you who operate in the field of international fraud investigations will be horrified by some of the quotes lifted from advertisers on the Facebook website.
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As well as:
Use your retirement funds to buy Bitcoin!
The last quote regarding retirement funds is especially worrying, as some senior citizens may be less likely to fully understand the nature of cryptocurrencies and the risks associated with such investments. This could be a recipe for disaster.
Only last month a previously unknown cryptocurrency called Prodeum advertised to raise capital for software designed to ‘label fruit’. Its website very quickly disappeared along with a small amount of investors’ money, leaving behind a solitary page that simply said “Penis” on it. This was probably a jolly-jape by those who dreamed it up. But the fact that they successfully generated enough interest that people were willing to put their money into a non-existent scheme is disconcerting.
John Oliver drew attention to the World Blockchain Forum conference held in Miami this January. It was reported that the organisers stopped accepting Bitcoin for payment. As Mr. Oliver observed, if the World Blockchain Forum can’t accept Bitcoin, then the currency may have more glitches than are currently admitted. He described the current situation as being akin to the “Wild West and ripe for exploitation,” likening some of the cryptocurrencies to pump and dump schemes.
Indeed, one such currency known as Bitconnect was once valued at $3 billion, promising investors returns of 40 percent per month. Bitconnect used advertising that included diagrams of what was essentially a pyramid scheme. Two U.S. state blue sky regulators alarmed at its actions issued cease-and-desist orders, labelling Bitconnect a Ponzi scheme, causing it to go under.
Cryptocurrencies are so new that none of us can accurately predict what the future holds for these monetary systems. The massive fluctuations in value of Bitcoin, for example, mean that investors will be attracted to the possibility of making huge profits. The problem is that value can drop alarmingly, causing huge losses. But there are those who will be able to ignore the danger of incurring huge losses in favour of the possibility of big gains.
Digital currency is here to stay for the time being. Call it Fools Gold, but there are a lot of people out there making bucket loads of money either by gambling wisely on the various cryptocurrencies, or by ripping off those who long for a piece of the digital action.
What is certain is that anti-fraud lawyers and investigators will be trying to untangle some of the messes that victims of wayward cryptocurrency schemes find themselves embroiled in during the coming years.
Charles Mackay’s 1841 masterpiece on mass mad human folly, Extraordinary Popular Delusions and the Madness of Crowds, reminds us of sensationally bad moments such as the South Sea Bubble (1711), the Mississippi Company bubble (1719-20), and the Dutch Tulip mania of the early 17th Century (during which a single tulip bulb traded for more than 10 times the annual income of a skilled craftsworker).
I submit that Charles Mackay would be shocked by what he could see today in cryptocurrency trading as these mass mad acts of folly centuries past. As a lawyer whose practice focuses on international fraud and cross-border asset recovery, I have no doubt that cryptocurrencies will feature in my investigations in years to come.
Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. He was selected as one of the Top 40 Thought Leaders of the Legal Profession in 2017 by Who’s Who Legal International and as the number one offshore lawyer for asset recovery.
At a recent Strategic Investment Conference held in California, managers of some of the major US funds said that they were moving much of their investment money into cryptocurrency. These are not people easily duped into buying bad investments.
Moreover, a number of them suggested that the cryptocurrency market will likely result in a serious decline in the need for banks in the future.
Indeed 50% of the Initial Coin Offerings (ICO) valued at $4 Billion during 2017, failed.
During the G-20 meeting held in Buenos Aires, Argentina, last week world's economic leaders agreed that cryptocurrencies and Blockchain technology, given its borderless and intangible nature, are fundamentally reshaping the global cross-border financial connectedness, and its increasing ability to automate cognitive tasks. The G20 settled on characterizing cryptocurrencies as property, thereby setting the stage for cryptocurrencies to be adapted as a new digital-asset-class. They committed to implementing Financial Action Task Force (FATF)’s anti-money laundering (AML) and terrorist financing standards as they apply to crypto-assets to mitigate concerns over security, consumer protection, and financial crime. As well as to abide by Organization for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) framework, study international nexus and profit allocation concepts for taxing the digital economy (BEPS Action 1) and come up with a new approach by 2020, as agreed upon by 113 countries. They also established a July 2018 deadline for proposals for cryptocurrency regulations.
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