Illicit cryptocurrency activity in the first half of the year dropped in line with a tumultuous period for digital currency markets, with fewer people than ever falling for cryptocurrency scams, according to a new report.
Total scam revenue for the year currently stands at $1.6 billion, almost 65 per cent lower than where it was at the end of July last year, Singapore cyber security company Chainalysis revealed in its report.
The decline in illicit activity “appears linked to declining prices across different currencies”, it said.
Since January, scam revenue has dropped “more or less in line with Bitcoin pricing”, said Eric Jardine, cybercrimes research lead at Chainalysis.
“It’s not just scam revenue falling … the cumulative number of individual transfers to scams so far in 2022 is the lowest it’s been in the past four years," he said.
The cryptocurrency industry is in a so-called crypto winter, or a cool-down in the market that dragged Bitcoin, the world's first and largest cryptocurrency, to crash below its key $20,000 psychological level in June and wiped $2 trillion off the sector’s total market value, sending it below $1tn.
Since then, Bitcoin has pared back some of its losses and was trading about 0.10 per cent lower at $24,072.80 as of 4.10pm UAE time on Tuesday.
The market is still reeling from the spectacular collapse of the Luna cryptocurrency and its associated Terra stablecoin. Terra — which, as a stablecoin, was meant to have a value of $1 at all times — was de-pegged on May 9, causing it to crash to seven cents.
Digital currency scams are often driven by “large outliers” such as PlusToken, which netted more than $2bn from victims in 2019, or Finiko, which netted over $1.5bn last year, the Chainalysis report said.
However, no identified scams have approached their level thus far in 2022.
The biggest scam so far this year netted $267 million worth of cryptocurrency, just 23 per cent of Finiko’s revenue through the end of July in 2021.
“One reason for this could be that with asset prices falling, cryptocurrency scams — which typically present themselves as passive crypto investing opportunities with enormous promised returns — are less enticing to potential victims," Mr Jardine said.
“[The] new, inexperienced users who are more likely to fall for scams are less prevalent in the market now that prices are declining, as opposed to when prices are rising and they’re drawn in by hype and the promise of quick returns."
However, since total scam revenue in a year is usually driven by one or two huge scams, it is possible an outlier could emerge or be identified before the end of 2022 and reverse the trend, Chainalysis said.
Where is crypto illicit activity increasing in 2022?
Although there is a decline in crypto scams, the market has recorded a surge in hacking and stolen funds. Between January and July, $1.9bn worth of cryptocurrency has been stolen in hacks of services, compared with just under $1.2bn during the same period last year, the report found.
“This trend doesn’t appear set to reverse any time soon, with a $190m hack of cross-chain bridge Nomad and $5m hack of several Solana wallets already occurring in the first week of August,” Mr Jardine said.
Earlier this month, nearly 8,000 digital wallets were drained of more than $5.2m in cryptocurrency including Solana’s sol token, according to blockchain analytics firm Elliptic.
US crypto company Nomad, which was hit by a nearly $190m theft in the first week of August, said in a tweet that it was "aware of the incident" and was investigating the matter.
“The only way to stop them [thefts] is for the industry to shore up security and educate consumers on how to find safe projects to invest in … law enforcement, meanwhile, must continue developing their ability to seize stolen cryptocurrency to the point that hacks are no longer worthwhile,” Mr Jardine said.