Unregulated Crypto Schemes Drain Millions from Australian Investors

Cryptocurrencies are often seen as the future of finance, promising fast, secure, and decentralised transactions. However, they also pose significant risks for investors, especially in countries lacking regulation and oversight. In Australia, numerous crypto schemes have emerged, offering high returns and low fees but ultimately leaving investors with substantial losses.

BitConnect was one such scheme that claimed to offer a lending service where users can earn interest by lending their bitcoins to a trading bot. Promising returns of up to 40% per month and rewarding users for recruiting new members, BitConnect attracted thousands of investors globally. In January 2018, it abruptly shut down, citing legal issues and cyberattacks, causing the price of its token (BCC) to plummet from over $400 to less than $1, resulting in significant losses for investors. Lawsuits have been filed against BitConnect and its promoters, but the chances of recovering funds are slim due to anonymous operators and scattered assets.

Another example was OneCoin, a purported cryptocurrency that turned out to be a pyramid scheme. Founded in 2014 by Ruja Ignatova, who styled herself as the ‘Cryptoqueen’, OneCoin claimed to rival Bitcoin with revolutionary technology, selling educational packages that supposedly taught users how to mine and trade its coins. Authorities exposed OneCoin as a scam in 2017, revealing it had no blockchain, mining, trading platform, or real value. Ignatova disappeared in late 2017, and her brother, Konstantin Ignatov, took over leadership but was arrested in 2019. The victims of OneCoin have lost billions of dollars worldwide, facing challenges such as the lack of regulation, difficulty tracing funds, and the complexity of the legal process.

These are just two examples of the many crypto schemes that have operated unchecked in Australia. According to a Finder.com.au report, Australians lost over $100 million to crypto scams in 2020 alone, a 23% increase from 2019. The report also found that one in four Australians invested in cryptocurrencies, but only one in five understands how they work.

In addition to these domestic challenges, Australian investors have fallen victim to overseas crypto schemes. HyperFund, also known as HyperVerse, established by Sam Lee and Zijing ‘Ryan’ Xu, founders of the collapsed Australian bitcoin company Blockchain Global, was a notable example. HyperFund claimed to be a ‘decentralized global community’ offering investors ‘passive income’ of up to 1% per day by investing in various blockchain projects. Despite warnings from New Zealand and the Philippines regulators and being flagged as a possible ‘scam’ and ‘suspected pyramid scheme’, HyperFund continued operations until its abrupt shutdown in November 2021. Investors reported losing significant amounts and filing complaints with ASIC, but the regulator has not taken further action.

The inaction by ASIC against HyperFund raises questions about its approach to crypto-based schemes. Some experts suggest that ASIC lacks the technical expertise and resources to address these complex and dynamic schemes. Chris Berg, director of RMIT’s Blockchain Innovation Hub, emphasised the need for a more proactive approach by ASIC in educating investors about crypto investments, providing guidance on identifying legitimate schemes and clarifying red flags or indicators of potential scams.

The surge in crypto investment schemes, coupled with the lack of effective regulatory oversight, has led to substantial financial losses for investors in Australia. The cases of BitConnect, OneCoin, and HyperFund underscore the challenges faced by individuals seeking alternative ways to capitalize on the digital age’s financial opportunities.

The incidents with BitConnect and OneCoin exemplify the risks associated with schemes promising extraordinary returns, only to collapse and leave investors with devastating losses. The anonymous nature of operators and the complexity of tracing funds across jurisdictions further compound the challenges faced by victims seeking restitution.

The HyperFund case, marked by overseas warnings and regulatory alerts, raises questions about the adequacy of ASIC’s response and its ability to handle the technical intricacies of crypto-based schemes. The lack of proactive measures and communication from regulatory bodies highlights the need for a more informed and engaged approach to protect investors.

As the crypto landscape continues to evolve, it is imperative for regulatory bodies like ASIC to enhance their technical expertise, take proactive steps in educating investors about risks, and provide clear guidance on distinguishing legitimate ventures from potential scams. This approach, coupled with increased transparency and accountability from crypto operators, can contribute to a more secure environment for investors.

In navigating the crypto investment landscape, investors must exercise vigilance, conduct thorough due diligence, and remain cautious of promises that sound too good to be true. Seeking professional advice and adhering to established guidelines can help mitigate the risks associated with unregulated and volatile markets.

Ultimately, as the digital economy advances, regulatory bodies, investors, and industry stakeholders must collaborate to establish a framework that fosters innovation while safeguarding the interests of individuals participating in the crypto space.