- Since there are few laws controlling the cryptocurrency market, cryptocurrency scams are increasing
- Scammers appear to be working quickly to take advantage of the somewhat new financial industry as the crypto field flourishes and usage reaches new heights
- One of the primary reasons for the lack of formal cryptocurrency rules is that most digital currencies are not regarded as legal tender or exchanges
In the modern rush for digital gold, more people strive to make money from cryptocurrencies. As a result of the unquenchable desire for cryptocurrencies, the number of fraudsters and scam artists has also increased. The world appears to have gone ‘crypto-crazy.’
The popularity of digital currencies such as Bitcoin, Dogecoin, Ethereum, and even Monero is growing daily. Their skyrocketing value bodes well for investors. Unfortunately, most crypto enthusiasts appear to be two or more steps behind fraudsters. The uncontrolled nature of cryptocurrencies has resulted in a continuous spawning of cryptocurrency fraudsters.
South Africa’s crypto scam case study
Africrypt, based in South Africa, was hacked in 2021. Hackers stole Africrypt clients’ money for an astounding $3.38 billion.
While the suspected breach made worldwide headlines, the creators of Africrypt (two brothers) fled while global investigators sought to identify what transpired. Ameer Cajee, the oldest brother, alerted clients that the firm had been hacked. He instructed them not to disclose the occurrence to the police since doing so would impede the recovery of the lost monies.
It is currently thought that the entire cryptocurrency investment business was a sham. The founders disappeared with about 69,000 coins following the rise in the value of Bitcoin in 2020.
Since there are few laws controlling the cryptocurrency market, cryptocurrency scams are increasing. Soaring cryptocurrency prices also appeal to individuals who want to get rich quick. Such customers are an excellent target for con artists.
As a result, the necessity to protect cryptocurrency investors and customers appears to be driving the South African government to regulate virtual assets. These regulations are meant to promote accountability and minimize the use of cryptocurrencies for unlawful reasons.
Rising crypto scams in Africa
Scammers appear to be working quickly to take advantage of the somewhat new financial industry as the crypto field flourishes and usage reaches new heights. In 2021, crypto scams in Africa were 12 times more prevalent than in 2020, with total amounts lost increasing by over 1000 per cent.
The increasing number of crypto frauds can no longer be ignored since they present a strong case for why cryptocurrency regulation is required. However, regulation in this sector remains restricted despite increased worry about fraud.
Governments are more likely to issue prohibitions than draft laws for adequate regulation that balances stakeholder interests. Nowhere is this more evident than in Nigeria, where the central bank prohibited its financial institutions from facilitating cryptocurrency transactions last year. Nigeria joined 23 other African nations that have implied or issued outright restrictions on the crypto trade.
How will regulation help cryptocurrency investors?
One of the primary reasons for the lack of formal cryptocurrency rules is that most cryptocurrencies are not regarded as legal tender or exchanges. Given the rise in scams, we believe that establishing a regulated framework might assist investors.
Regulations would work to increase investor protection and confidence. Currently, crypto investors have far less market security since most transactions inside the industry are not supervised or sanctioned by government authorities.
While this may theoretically allow financial information to move from one person to another, it also puts investors at greater risk.
Most traders, desperate to find the next Bitcoin, may purchase cryptocurrencies that are, at best, very volatile and, at worst, fraudulent schemes.
The substantial danger of bitcoin offers a compelling case for regulation. A regulatory framework can protect investors by limiting the negative consequences of investing through safeguards that make the market less susceptible.
While it would not affect the risk level of their investment, it would remove fraud scams, transforming cryptocurrency from an unknown frontier crowded with fraudsters into a profitable investment tool with risks.
Regulatory frameworks can also create a safer ecosystem for investors to navigate. Due to the absence of industry regulation, Africa views cryptocurrency as the “Wild West.” The absence of policies, rules, and regulations has been mainly responsible for the industry’s explosive rise. In addition, the lack of regulation has resulted in rampant fraud, frauds, and market manipulation, resulting in significant losses for investors.
There are currently over 17,000 cryptocurrencies that are highly speculative, placing investors at risk. Regulation can impose requirements that cryptocurrencies must achieve before being suitable for investors. They must prove that they take all necessary precautions to prevent scams, ensuring that fraud is not frequent and lower investment risk.
Additionally, regulations would help investors to shift to stable investment patterns. The crypto market’s high-risk, high-reward structure encourages investors to pursue more speculative investing techniques, emphasizing short-term gains over long-term rewards.
While this method may benefit some investors, it makes the market undesirable to others who want to invest long-term.
Furthermore, it results in a turbulent market focused on supplying the newest currency that delivers rapid profits rather than something that can expand over time, ultimately transforming the cryptocurrency market into a volatile one focused on short-term gains.
Having laws in place would promote a shift in investment patterns away from short-term profit and long-term growth, resulting in a more stable market.
While some investors may have a short-term knee-jerk response, the market will eventually level out by exchanging fast growth and dramatic losses for long-term development and consistent progress.
The future of cryptocurrencies and financial regulation
While it is still in its early stages, Cryptocurrency offers great potential as an alternate tool for a decentralized platform that enables the exchange of funds. However, with the market shifting between rapid growth and losses, there is much anxiety about its long-term stability.
As a result, while discussing the best tactics for risk management in cryptocurrencies, regulation must be included. This is because establishing regulation may encourage market stability and long-term growth, resulting in a more stable market and making it more appealing for long-term investment.