By the end of 2021, 300 million people globally were cryptocurrency holders, nearly 200 million more than in 2020. In 2021, 16% of Americans held or invested in cryptocurrency. However, according to a survey from crypto platform Voyager Digital, 61% of Americans “may purchase cryptocurrency in 2022.”
Crypto revenue exchanges grew by 600% in 2021 and will only continue to climb as more people buy, trade, and invest in digital assets. Yet, based on findings from Cryptoliteracy, most people still do not understand how cryptocurrency works. In addition, there are multiple threats in the cryptocurrency market, which remains unregulated.
For this brief, Overwatch will explain what cryptocurrency is, how digital assets are becoming more mainstream, and some of the potential threats for crypto holders.
What is Cryptocurrency?
Cryptocurrency is a digitally-based, encrypted, and decentralized form of exchange that eliminates the need for third parties like banks and financial institutions. Cryptocurrency exists on a digital ledger called the blockchain. The blockchain maintains a record of transactions that anyone can review.
The most well-known cryptocurrency on the blockchain is Bitcoin. Bitcoin, created in 2009, following the 2008 recession, was developed by a person or group of people under the pseudonym Satoshi Nakomoto. In a white paper titled: A Peer-to-Peer Electronic Cash System, Nakomoto wrote, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Since 2009, Bitcoin has gone from a digital asset with no monetary value to worth $40,912 per Bitcoin. From November 2021 to March 2022, Bitcoin has lost about one-third of its value, as it was $68,000 per Bitcoin on November 10, 2021.
Bitcoin remains the most valuable and popular cryptocurrency, but it is one of an estimated 12,000 cryptocurrencies. Further, per research by Motley Fool, there are 1,000 new cryptocurrencies added to the market monthly.
Aside from Bitcoin, other cryptocurrencies that hold significant monetary value are:
- Ethereum, which are $2,849 per coin
- BNB, which is $389.29 per coin
- Terra, which is $94.24 per coin
- Solana, which is $88.09 per coin
- Avalanche, which is $84.94 per coin
Cryptocurrency buyers can purchase digital assets on crypto exchanges, a few of which are Binance, Coinbase, Crypto.com, Gemini, and Kraken. These platforms could be compared to trading platforms for stocks and provide real-time data about the value of cryptocurrencies and analytics that show their value over time.
Cryptocurrency Becoming More Mainstream
According to data, cryptocurrencies are becoming a more popular asset and investment. Companies and financial institutions are beginning to put more resources into cryptocurrency, with some offering it as an asset. Social media platforms are implementing tipping systems with cryptocurrency, and it is becoming more commercialized in the media and entertainment industry.
- In February 2021, Tesla, the 6th largest company globally, bought 1.5 billion dollars in Bitcoin.
- In March 2021, Morgan Stanley said it would provide its wealth management clients access to Bitcoin funds.
- In April 2021, Coinbase, a Bitcoin startup, went public, trading at $381.00 per share.
- In August 2021, Walmart put out a job posting for a cryptocurrency expert.
- In September 2021, former Twitter CEO and platform founder Jack Dorsey said that Twitter would allow users to tip their favorite accounts with Bitcoin.
- In November 2021, according to Pew Research, 16% of Americans used, invested in, or traded cryptocurrency.
- During Super Bowl 56 in February 2022, four cryptocurrency ads aired on TV.
- On March 9, 2022, U.S. President Joe Biden signed an executive order on “ensuring the responsibility of digital assets.” The executive order focuses on responsible innovation of digital currencies, mitigating illicit activity, exploring a digital currency for the United States government, and consumer and investor protection.
Crypto Threats
The most significant threat in the cryptocurrency market today is fraud. This fraud frequently occurs on social media platforms, with people claiming to be cryptocurrency experts reaching out to help you make money in the market. The fraud issue is prolific on Instagram. Overwatch analysts have been approached by fraudsters, claiming to be subject matter experts on the topic.
The following screenshot shows a fraudster reaching out to one of our analysts.
As we continued our conversation with Rebecca, we asked her to tell us the company she worked for, and she didn’t provide an answer. Instead, she asked for a WhatsApp number, commonly used by cybercriminals to launch phishing attacks. A further review of her account showed that Rebecca used the exact language posted from other social media accounts, who also claimed to be cryptocurrency experts.
On December 27, 2021, Rebecca, posted to Instagram, “Start up a binary option investment today and enjoy 100% guaranteed profit every week with easy access to your account and direct communication with your account manager, payout/ withdraw is 100% accessible. We have excellent trading instruments, but we also support them with the best tools: volatility alerts, market updates, stock screeners, calendars, and newsletters.”
Analysts found the same language from a November 2020 tweet by Twitter user @mrs_elizabeth02. We ran a reverse image search on @mrs elizabeth02’s profile photo, which yielded results on VK.com, Russia’s equivalent of Facebook. On the VK profile, her username is Magaret Rylee, and she claims that she can help interested parties earn up to $15,000 per day.
In January 2022, the Federal Trade Commission (FTC) reported, “Social media is a tool for scammers in investment scams, particularly those involving bogus cryptocurrency investments — an area that has seen a massive surge in reports. More than half of people who reported losses to investment scams in 2021 said the scam started on social media. Reports to the FTC show scammers use social media platforms to promote bogus investment opportunities, and even to connect with people directly as supposed friends to encourage them to invest. People send money, often cryptocurrency, on promises of huge returns, but end up empty-handed.”
Our Assessment
Overwatch assesses that the cryptocurrency market will continue to grow as consumers learn more about digital assets and companies continue to create avenues for crypto adoption, investment, and education. This growth will occur because cryptocurrency is seen as more resilient than traditional investments during times of global conflict. While the Russia-Ukraine war led to losses in the crypto market, the most traded cryptocurrencies are beginning to bounce back. Additionally, blockchain companies will continue to accumulate massive investment from venture capital firms, disrupting traditional commerce building more name recognition for the cryptocurrency market. With 1,000 cryptocurrencies joining new exchanges monthly, there will likely be market saturation in the future, where newer cryptocurrencies possibly hold less value. In 2021, venture capital firms invested 25.2 billion dollars in blockchain companies, a number we expect to see a significant increase in for 2022.
Cybercriminals and criminal networks will continue to target exchanges and individuals as the cryptocurrency market expands, developing new methods to manipulate and defraud potential investors. As platforms like Instagram, Facebook, and Twitter have no stated policy in place to monitor cryptocurrency fraud, these crimes will only increase on major social media platforms. Continued education throughout our societies will reduce scams carried out by criminals on people that do not fully understand credible cryptocurrency investment processes.
Entering the cryptocurrency market as a business owner or investor will continue to come with risk as the blockchain is not regulated by governments or law enforcement. However, many crypto exchanges are registered with the Financial Crimes Enforcement Network (FinCEN) and work in concert with law enforcement agencies to prevent fraud, scams, and money laundering on the blockchain.