On Monday, the blockchain surveillance company Chainalysis published an excerpt from the firm’s upcoming crime report that will publish in January. According to the Chainalysis research, the Ponzi scheme called Plustoken not only defrauded investors out of $3 billion but the scam “may also be driving down the price of bitcoin.”
Also read: Mystery Surrounds DDoS Attacks That Have Downed the Darknet
Are Ponzi Schemes Behind the BTC Price Suppression?
Over the last few weeks, a lot of speculators have assumed that the Plustoken and Cloudtoken scams are the primary reason BTC prices have been suppressed. Plustoken is a Ponzi scheme that started in South Korea where essentially the creators promised huge returns if people kept their funds in the Plustoken platform. The Plustoken admins said that the rewards stemmed from “exchange profit, mining income, and referral benefits.”
While we were worried about Craig Wright threatening to sell his Bitcoins, PlusToken has quietly dumped this market into oblivion.
What should we be even more concerned about? The amount of ETH they’ve yet to sell, which is staggering.
— Omar Bham (Crypt0) (@crypt0snews) December 17, 2019
On the Plustoken website, the team said the platform was like a traditional crypto wallet but with a profit-sharing concept. “Our super wallet will let you earn interest of around 6-18% monthly profit allocated to your wallet,” the Plustoken wallet site details. In June, global law enforcement busted six members who allegedly ran the Plustoken Ponzi operation. Then in August, the blockchain analysis firm Ciphertrace published its Q2 cryptocurrency anti-money laundering report and the research discussed the Plustoken scheme.
“Ciphertrace has not definitively confirmed this apparent fraud or exit scam and [$2.9 billion in deposits] appear to have been lost when Chinese police broke up an alleged Ponzi scheme involving the purportedly South Korea-based crypto wallet and exchange, Plustoken,” the report disclosed. Ciphertrace also noted that the Plustoken scheme attracted “between 2.4 and 3 million users/investors.” Another report published the same month by the blockchain analytics firm Elementus shows that the Plustoken Ponzi was able to absorb 10 million ETH from over 800,000 participants. Elementus stressed that capital outflow from Plustoken-associated addresses appeared to be sent to exchanges like Huobi, Upbit, Okex, Gate.io, and ZB.com. At the time, Elementus recorded 820,000 ETH that remained onchain and the funds saw no movement after the initial deposit.
PlusToken. CloudToken. OneCoin.
We will likely look back on this period for BTC, when number didn’t go up while the macro backdrop was so exceedingly bullish, & realize with hindsight that it was bc of *billions* of dollars of selling pressure from exit scams.
Its that simple.
— Travis Kling (@Travis_Kling) December 9, 2019
Chainalysis: ‘Plustoken May Also Be Driving Down the Price of Bitcoin’
For several months now, many observers have insisted that the Pluscoin scam and other large crypto Ponzis like Onecoin and Cloudtoken have been suppressing crypto markets. On December 16, Chainalysis explained that the company has been monitoring the scam and believes Pluscoin scammers may be behind the bearish markets. “We decided to run our own study of Bitcoin’s price in relation to Plustoken cashouts via Huobi OTC brokers to try and answer that question,” Chainalysis said. The blockchain surveillance company analyzed 180,000 BTC, 6,400,000 ETH, 111,000 USDT, and 53 OMG (Omisego) that was involved with the Plustoken scheme. The staggering figures made Chainalysis assume that Plustoken was “one of the largest Ponzi schemes ever.”
Chainalysis also disclosed that while six individuals tied to the Plustoken scam were arrested in June, stolen funds on the move indicate that at least one or a few other Plustoken scammers are still on the run. The Plustoken sales have been conducted using independent over-the-counter (OTC) brokers who utilized the Huobi platform. “As we hypothesized, spikes in on-chain flow to OTC brokers correlate with drops in Bitcoin’s price,” the Chainalysis emphasized. Chainalysis also noted that 790,000 ETH has been sitting untouched for months. The BTC movements were more complicated, the surveillance firm underlined, because the scammers transferred the BTC 24,000 times to 71,000 unique addresses. The Chainalysis report added:
Many of those transactions were conducted through mixers like Wasabi Wallet, which utilizes the Coinjoin protocol to make it more difficult to trace the path of funds.
Illicit Cash-Outs Can Cause Price Volatility
Beyond mixers, the Plustoken scammers leveraged a method called peel chains which are strings of transactions sent to several wallets very quickly and then small amounts of funds drop off the string of payments. From here, the funds made their way to OTC brokers and Chainalysis said that nearly all of the funds get directed toward OTC dealers. “Some OTC brokers have significantly lower KYC requirements than most exchanges, which can make them attractive for criminals like the Plustoken scammers,” the report’s author opined. Despite the correlation with price drops and OTC sales, Chainalysis stressed that the researchers are not 100% sure Plustoken cash-outs made BTC prices sink. The Chainalysis report further articulated:
Unfortunately, because it’s not possible to distinguish between trades made by OTC brokers in possession of Plustoken funds and all other trades made on Huobi, we can’t say for sure that Plustoken cashouts caused Bitcoin’s price to drop. However, we can say that those cashouts cause increased volatility in Bitcoin’s price, and that they correlate significantly with Bitcoin price drops.
For now, millions of dollars worth of BTC and other cryptocurrencies associated with Plustoken sit idle and have yet to be cashed out. The Chainalysis report published on Monday explained in great detail that scams like Plustoken always lead to large liquidations. Eventually cashing out funds from a Ponzi of that magnitude will be “likely to drive down the price of cryptocurrencies,” the report concluded.
What do you think about Plustoken scammers possibly keeping the price of BTC suppressed by cashing out large sums of coin? Let us know what you think about this subject in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons, Fair Use, and the Chainalysis blog.
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