Cryptocurrency scams revenue hit $1.6 billion in July 2022
New Chainalysis data reveals that the total cryptocurrency scam revenue for 2022 currently sits at $1.6 billion, 65% lower than where it was through the end of July of 2021. The reason for the decline, Chainalysis stated appears linked to declining prices across different currencies.
It’s no news that the cryptocurrency market has had it rough in the past couple of months as prices have been on free fall since the start of the year. This year alone, we have seen record level of declines as many sectors such as the Decentralized Finance and Non-Fungible Token (NFT) sectors have seen a record level of reduced participation as investors shift to less riskier assets in a bid to safeguard their wealth.
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Chainalysis’ cybercrimes research lead, Eric Jardine, the author of the report, explains that crypto investors are more likely to fall for scams during bull markets when the investment opportunities and outsized returns are most enticing to victims. He also hypothesized that bull markets also typically see a higher prevalence of new, inexperienced crypto users, who are more likely to fall victim to scams.
What you should know
The report explains that cryptocurrency transaction volumes this year for both illicit and legitimate entities are tracking behind 2021 through July. It explains that criminal activity appears to be more resilient in the face of price declines, as illicit volumes are down just 15% year over year, compared to 36% for legitimate volumes.
Though we are seeing some declines in these two subsets, the aggregate data doesn’t tell the whole story. The report explained, “If we dig into specific forms of cryptocurrency-based crime, we find that some have actually increased in 2022, while others have declined more than the market overall.”
The report also confirmed that there is a direct correlation between the price of Bitcoin and the fall in the scam revenue, which may be due to investors getting more educated and smarter with their money or that there is significantly less participation in the market because the rate of return as significantly dropped when compared to last year. The report reveals that the latter is the case for 2022.
The report reads, “Since January 2022, scam revenue has fallen more or less in line with Bitcoin pricing. And as we see on the chart below, 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. Those numbers suggest that fewer people than ever are falling for cryptocurrency scams. 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.”
The report then further explained that a lot of inexperienced users of cryptocurrency are no longer interested in the market. It reads, “We also hypothesize that 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.”
The report ranks the top three scams of 2022 so far, which are, Juicy Fields, which has received a total of $273.94 million, Unique Exchange, which accounts for a total of $267.50 million and Omega Pro, which accounts for $106.45 million.
When compared to the biggest scam of 2021, which was Finiko, which received a total of $1.16 billion, the biggest scam of 2022 so far has netted just 24% of Finiko’s revenue through the end of July in 2021.
The report explained that since total scam revenue in a given year is so often driven by one or two huge scams, it’s possible an outlier could emerge or be identified before the end of the year and reverse the trend of declining scam revenue that we currently see.
Though we are seeing a decline in scam revenue, it is important to remember that as at July 2022, $1.9 billion worth of cryptocurrency has been stolen in hacks of services, compared to just under $1.2 billion at the same point in 2021, a 58.33% increase.
This trend doesn’t appear set to reverse any time soon, with a $190 million hack of cross-chain bridge Nomad and $5 million hack of several Solana wallets already occurring in the first week of August.
The report concluded by stating, “we shouldn’t expect theft to drop based on cryptocurrency market movements the way scamming does — as long as crypto assets held in DeFi protocol pools and other services have value and are vulnerable, bad actors will try to steal them. The only way to stop them 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.”
