People Are Losing More to Cryptocurrency Crime Than Ever; $4.52 Billion to be Precise

Losses from cryptocurrency crime surged to $4.52 billion last year, as insider theft soared even as hacking losses declined, according to a report from blockchain forensics company CipherTrace seen by Reuters. Last year’s losses were up nearly 160% from 2018’s total of $1.74 billion. Blockchain, which first emerged as the system powering bitcoin, is a shared database maintained by a network of computers. Cryptocurrency user and investor losses due to fraud and misappropriation in 2019 increased by more than five times, while hacks and thefts fell by 66%, the report showed.

“We noticed a significant uptick in malicious insiders scamming unsuspecting victims or leaching on their users through Ponzi schemes,” Dave Jevans, CipherTrace chief executive officer, told Reuters. “Attacks from the inside of organizations lead to significant exits with major consequence to the crypto-ecosystem.” Since bitcoin’s launch more than 10 years ago, governments and regulators around the world have grappled with the opaqueness and lack of transparency in the cryptocurrency market that has led to massive losses for investors. Two large losses early last year were the main drivers for the surge, CipherTrace said.

Users and customers lost roughly $3 billion from an alleged Ponzi scheme involving crypto wallet and exchange PlusToken. The other significant loss was the almost $135 million that customers lost from Canadian crypto exchange QuadrigaCX following the unexpected death of its co-founder, according to CipherTrace. The CipherTrace report also found illicit cryptocurrency money service businesses - including crypto exchanges - have transmitted funds on the payment networks of almost all the top 10 U.S. retail banks.

Analysis further revealed that a typical large U.S. bank processes billions of dollars annually in undetected cryptocurrency-related transfers. “These clandestine operations create AML (anti-money laundering) compliance risks because criminals must find ways to launder ill-gotten crypto profits,” CipherTrace said in the report.

CipherTrace research found that banks globally paid more than $6.2 billion in AML fines in 2019.