Crypto Market Data Published; Settlement Pilot Announced; Reports Analyze Crypto Scams; Exchanges Seek to Prove Reserves as Users Withdraw Funds

By Amos Kim, Christopher Lamb, Robert A. Musiala & Keith R. Murphy on November 18, 2022

In this issue:

New Crypto Market Data Published, Blockchain Settlement Pilot Announced
CFPB Publishes Report on Crypto Scams; Study Analyzes Scams on Uniswap
Multiple Cryptocurrency Exchanges Intend to Publish ‘Proof of Reserves’
Users Move Crypto Off of Exchanges, Tether Freezes $47M in USDT

New Crypto Market Data Published, Blockchain Settlement Pilot Announced

The Bank for International Settlements (BIS) recently published the results of a study “to investigate the drivers of crypto adoption” by assembling a database “on retail use of crypto exchange apps at daily frequency for 95 countries” over a period of seven years. According to BIS, the data shows that rising bitcoin prices are followed by the entry of new users, with about 40 percent of new users being men under 35, commonly identified as the most “risk-seeking” segment of the population. The data also indicates that roughly 75 percent of retail investors have likely lost money on their bitcoin investments.

In a recent press release, the innovation center of the New York branch of the U.S. central bank announced that it will collaborate with a group of private sector organizations in a 12-week proof-of-concept project “to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger.” According to the press release, the project “will test the technical feasibility, legal viability, and business applicability of distributed ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities.”

In a final notable item, a cryptocurrency trading firm recently published a report on current cryptocurrency market activity and the “general macro outlook” of the cryptocurrency sector. The report provides current data and analysis on various areas of the cryptocurrency markets, including lending, derivatives, altcoin volatility and DeFi activity.

For more information, please refer to the following links:

CFPB Publishes Report on Crypto Scams; Study Analyzes Scams on Uniswap

By Christopher Lamb

A recently published report from the Consumer Financial Protection Bureau (CFPB) highlights the vast number of complaints to the CFPB related to cryptocurrency assets. According to the report, “more than 8,300 complaints related to crypto-assets submitted to the CFPB from October 2018 to September 2022 have been submitted in the last two years with the greatest number of complaints coming from consumers in California.” The report notes that the most common issues were fraud and scams, followed by transaction issues and hacking. Included in these complaints are reports of frozen accounts, platform bankruptcies and consumer losses. The report claims that older consumers and service members are two special-interest populations affected by these issues because they can be disproportionately impacted by financial product and service issues. According to the CFPB, “analyses suggest that complaints related to crypto-assets may increase when the price of Bitcoin and other cryptoassets increase[s].”

According to a recent study carried out by academics from University of Barcelona, 26,957 of 27,588 tokens listed on the decentralized cryptocurrency exchange Uniswap were “rug pulls” or scams. The study found that only 631 of the tokens analyzed were determined to be non-malicious.

For more information, please refer to the following links:

Multiple Cryptocurrency Exchanges Intend to Publish ‘Proof of Reserves’

By Robert A. Musiala Jr.

According to reports, multiple cryptocurrency exchanges have recently indicated an intent to publish so-called proof of reserves in an attempt to alleviate market concerns. One major exchange recently released a list of its hot wallet and cold wallet cryptocurrency addresses, and several other major exchanges have committed to publishing proof of reserves, also known as Proof of Funds (PoF). According to reports, PoF involves an exchange engaging a third-party auditor to record all customer balances at the exchange and convert the balances into a cryptographic Merkle tree, which anonymizes the data. Customers of the exchange are then able to use the Merkle tree data to compare the total balances held by customers with the total assets held by the exchange, to gain assurance that the exchange holds sufficient cryptocurrency funds to meet customer withdrawal requests. According to reports, two separate cryptocurrency firms have recently announced solutions intended to assist exchanges in facilitating and demonstrating PoF audits.

For more information, please refer to the following links:

Users Move Crypto Off of Exchanges, Tether Freezes $47M in USDT

By Keith R. Murphy

According to recent reports, nearly $3 billion in bitcoin was withdrawn from exchanges last week, with a huge spike on November 9, and more users appear to be moving their bitcoin to non-custodied wallets. As of November 12, withdrawing addresses aggregated more than 70,000 according to the report, which further suggested that the numbers tie in with what seems to be “rapidly-declining BTC reserves across multiple platforms.” While a true accounting may be difficult to ascertain, an on-chain analytics company indicated that data suggests exchange reserves are at their lowest since February 2018. One report noted that a major U.S. cryptocurrency exchange recently experienced $485 million in net withdrawals within a 24-hour period.

Tether, the issuer behind the widely used stablecoin USDT, has reportedly frozen $47 million in USDT on the Tron blockchain in response to a request from a law enforcement authority. A spokesperson reportedly acknowledged that the company has started receiving requests by law enforcement authorities to freeze assets temporarily while an investigation ensues.

For more information, please refer to the following links: