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[OPINION] The creeping cryptocurrency crash

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In the last five years, from the time the United States economy was operating with all throttles open, achieving historic growth while its trading partners followed suit, our comparative benchmark indices were testaments to fundamental resilience first seen during the administration of the late President Benigno Aquino III. Inherited by our last democratically elected Chief Executive before Marcos 2.0, fringe financial analysts, capital market short-sellers, marginal players, and even con artists advised investors of the strangest strategies given unprecedented high liquidity in the system.

Where regional growth statistics were concerned, ours was among the highest. There was comfort in that. Even an unhealthy amount of complacency.

Unfortunately, things bright and shiny attract. Predatory vermin included. Citing maverick capital market gaming, fringe Bear-and-Bull fundamentals as well as novel, albeit often debunked wave-and-cycle theories characteristically promising fantastic too-good-to-be-true (TGTBT) returns, conmen and carpetbaggers crept out of the woodwork.

While the typical Ponzi scammer applies network marketing technologies on the sly to hide a con behind such products as health drinks and supplements, detergents and even website domain names, the financial fraudster employs monetary derivatives whose returns are a function of short trades rather than inherent investment value.

Like slick and slippery used car salesmen, snake-oil peddlers are charmingly eloquent, able to sell anything from Chinese-made tourbillon wristwatches, to stock in backdoor-listed low-cap companies.

The financial potions, elixirs and snake-oil in their peddler’s traveling dog-and-pony wagon include other cryptic products. The TGTBT (Too Good To Be True) tag however remains a constantly repeated mantra where these pledge blue-sky returns. Blue-sky are B.S., speculative, utopian, TGTBT or of no inherent value.

The bag of tricks includes metals, bitcoins, and other financial derivatives largely unregulated and under the radar of monetary authorities. Prudent and legitimate banks do not touch them. The con artists who peddle them provide their own trading rules where the TGTBT promise is a function of strict adherence to these. To complete the deception, they likewise establish their own trading platforms.

Citing crystal balls founded on wave theory and Fibonacci shell, and flower patterns, of late they’ve openly advised liquidating investments in real property and hard cash in place of their peddled “Triple A” TGTBT derivatives.

In the latest global billion dollar cryptocurrency scandal, note ominous commonalities.

At the center is a Bahamas-registered FTX Cryptocurrency Exchange (FTX). To understand the collapse, array the characteristics of a typical con artist’s modus with FTX.

FTX had issued a digital token, a cryptocurrency, that comprised the assets of FTX’s crypto-trading firm, Alameda Research. Since both were cryptocurrency-based rather than traditional cash or fixed assets, tokens were employed to cover its trades. Thus changes in the value of those tokens impacted on both companies. When cryptocurrency values dropped, the value of both companies likewise dropped.

Binance, a rival exchange registered in the Cayman Islands and initially based in China, had invested in the FTX tokens. After Binance was accused of money laundering and tax offenses in the United States and was ordered to stop operations in the United Kingdom, it liquidated all of its FTX tokens. That catalyzed a run among other investors until FTX virtually evaporated leaving in its wake billions in unliquidated tokens held by investors.

How is this relevant to the local milieu where scammers continue to operate, more now when the public is desperately seeking supplemental income?

Compare the alchemy of domestic con artists with specific aspects of the FTX collapse where $3.7 billion was lost before 2022, $8.0 billion still due and payable and over $1.0 billion that simply vanished. Use as a mnemonic product, protocols, protection, and poseurs.

Product-wise, cryptocurrencies, like the equities or products peddled by fraudsters have no inherent value other than those derived from short selling them. Hence, the key is a TGTBT margin based on virtual arbitrage.

This is where proprietary protocols enter the con. Very specific stocks, metals, products, or tokens must be monetized only at specific instances through a platform identified by the scammer.

As for protection, for cryptocurrencies as well as anything peddled by fraudsters, these are traded outside legitimate and regulated exchanges often using insider information. This lack of oversight or the use of illegal privileged data is key to TGTBT returns.

The final “P” representing “poseurs” is ironically beguiling and disarming. The person behind FTX was reputed to be especially generous. So are local fraudsters given to motherhood statements and self-labeled altruism.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.



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