CFTC Issues Investor Warning on Cryptocurrency Pump-and-Dump Scams
The US Commodity Futures Trading Commission (CFTC) issued a warning advising investors to avoid falling prey to cryptocurrency-based pump-and-dump schemes.
The Customer Protection Advisory, which was published by the chief US market regulator on Thursday, urges investors to conduct their own research before investing in cryptocurrencies, particularly ones that have small market caps and illiquid markets.
“Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes. Thoroughly research virtual currencies, digital coins, tokens, and the companies or entities behind them in order to separate hype from facts,” the CFTC said.
The bulletin detailed how groups of traders orchestrate pump-and-dump schemes intended to manipulate the price of individual cryptocurrencies, often through the use of fraudulent tactics such as spreading inaccurate or misleading news reports on social media.
These scams, the CFTC explained, are not new, but they often take advantage of the hype surrounding nascent technologies.
“As with many online frauds, this type of scam is not new – it simply deploys an emerging technology to capitalize on public interest in digital assets,” said CFTC Director of Public Affairs Erica Elliott Richardson. “Pump-and-dump schemes long pre-date the invention of virtual currencies, and typically conjure the image of penny stock boiler rooms, but customers should know that these frauds have evolved and are prevalent online.”
Indeed, the prevalence of these pump-and-dump schemes — and the inability of many retail investors to identify them as such — is one reason that Facebook banned cryptocurrency-related advertisements across all of its platforms.
The bulletin adds that, under current US law, the CFTC cannot directly police the spot markets. However, it does have a mandate to investigate fraud and market manipulation, authority which extends to cryptocurrency exchanges.
CFTC Chairman J. Christopher Giancarlo — who won the hearts of many cryptocurrency enthusiasts with his opening statement at a recent US Senate hearing — has advised legislators that any new federal regulations on cryptocurrency exchanges should be carefully tailored to address specific risks in the spot markets.
Republican CFTC Commissioner Brian Quintenz, meanwhile, has encouraged industry participants to adopt self-regulatory standards and best practices, even as legislators and regulators are considering whether the present state of the cryptocurrency markets warrants more formal oversight at the federal level.
Decentralized Market Exchanges (Dex) – Why Should You Care
A decentralized exchange (DEX) is a marketplace for cryptocurrencies or blockchain investments that is totally open sourced. Who controls trading process then? Well, it’s completely automated, and trades are conducted and controlled by users themselves.
How does it work? Basically, proxy tokens, which are crypto assets that represent a certain fiat or cryptocurrency, are created through a decentralized multi-signature escrow system. Decentralized exchange servers are distributed, which means their servers are spread out so that there is no risk of a server downtime.
Unlike the traditional centralized system, this system uses an automatic peer-to-peer payment network with no central authority. The money is held by the owner only and safely stored in a wallet, protected by a unique key. Which makes it essentially a ‘trustless system’. If the money is held by the owner, there’s no need to trust a third party. To add to this, disclosing a personal information is not required, as it usually happens with a centralized transaction. Anonymity is the DEX’s key and its milestone.
Decentralized system is also different from the centralized model in which users deposit their funds. When a user is about to withdraw the funds, these are converted back into the cryptocurrency they represent and sent to the owner. In a decentralized exchange, you can create an account and start trading right away.
If DEX are so brilliant, why don’t they rule the market yet?
Till now, there were a few drawbacks of a current DEX system, that made the rise quite challenging.
The lack of liquidity compared to the more popular centralized exchanges. Unfortunately, there is no user support and poor UI which won’t attract a mainstream user base
Some decentralized exchanges require users to be online for an order to be listed by them and for a trade to take place, requiring users to perform certain actions like signaling that a payment was received.
Trading features like margin trading, lending and stop loss are currently not available in the decentralized model, as they only allow the basic exchange of currency for a predetermined value.
Sometimes a transaction is declined by the network.
All ththesessues are seriously taken into account. As the whole blockchain industry develops rapidly and the demand increases day by day, experts are working hard over various solutions.
Good news, however, is that there ARE solid DEX platforms out there. Here’s a list of DEXs you should consider start using right now.
Bancor Protocol
Bancor created a unique Token Relay technology, which is basically a simple and ready-to-use online converter. Its aim is to address the liquidity challenge. If the ways in which consumers make transactions using cryptocurrencies could be unified and simplified, then it’s not difficult to imagine that the demand for such assets would increase even more.
As of now, about 30 coins are available for converting and trading within the Bancor network – a Tokenbox (TBX) token included.
Waves Dex
It’s a decentralised exchange, which is based on the Waves blockchain technology. It allows users to trade their tokens — including WAVES, BTC and other assets issued on the Waves platform — completely trustlessly and without having to move the funds to a centralised exchange.
OpenLedger Dex
OpenLedger is a blockchain based company with a headquarters in Denmark. It provides decentralized solutions for the crypto market. OpenLedger Dex leverages BitShare’s graphene technology to cater its services.
CryptoBridge Dex
CryptoBridge is a new entry in the decentralized crypto exchange markets. CryptoBridge is a decentralized exchange running on top of the BitShares Network. It supports decentralized trading of all popular altcoin pairs without a single point of failure. Only a user holds private keys to the funds and has access to them.
Bisq (aka BitSquare)
Bitsquare is a peer-to-peer marketplace for crypto assets. It is a fully decentralized exchange which requires no name, email ID or verification.
To be a truly anonymous peer-to-peer network, it uses Tor and doesn’t hold fiat or bitcoins on their servers or on their account. Every aspect of this exchange is decentralized from placing an order to matching and executing it.
Why DEX could be the future?
Surprisingly, all the projects listed above have entered the cryptocurrencies industry during the last 9-7 months. The market obviously has serious sentiments towards cryptocurrencies and other decentralized assets.
Also, the latest international regulation attempts, especially China’s ban strategy and cautious South Korean policy, catalyze the need of developing DEXs more than ever.
Keeping in mind all the current downsides, they are the only way that cryptocurrencies can survive and thrive. The kind of benefits that DEXs provide (gives the owner of the funds control, is anonymous, protects users against hacks and has no server downtime) will ultimately dwarf the shortcomings.
Author: Vladimir Smerkis is the co-founder and managing partner of Tokenbox, unique ecosystem that combines cryptocurrency funds under the control of professional portfolio managers and traders on the one hand, and investors on the other.
Featured image from Shutterstock.
News Source: https://ccn.com
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