The rise of digital assets boosted the number of warnings about unauthorized entities to 1,644 between 2019 and 2023.

A year ago, Madeira Invest Club (MIC) slipped into the extensive list of companies not authorized to provide investment services, also known as financial “chiringuitos”, that the National Securities Market Commission (CNMV) sends out every week. Usually, these companies do not attract attention because they are warned in time by the stock market watchdog, but this case came to the fore because it had been pushed by Alvise Perez, a member of the European Parliament.

MIC was listed by the CNMV because it used a Ponzi scheme by offering the possibility of investing in cryptocurrencies and other assets, such as digital works of art or watches, with a promised return of between 30% and 53%. CryptoSpain, which was the name under which the company operated, is one of the 1,644 financial scams that the regulator has warned against, between 2019 and 2023. Almost all of them are related to cryptocurrencies.

It is no secret in the industry. If before the scammers offered preferred shares, “commodities” and bonds, now the lure is cryptocurrencies.

Interest in cryptocurrencies began to peak in 2018. This has also whetted the appetite of scammers for digital assets. This can be seen in the compilation of unregistered entities that were warned by the CNMV: in that year, they amounted to 63 and in the following year, in 2019, the same number increased to 323 warnings.

“In the last five years, 99% of the warnings of financial racketeering were related to cryptocurrencies,” the regulator pointed out. In 2022, the furor plummeted. It was the year of the so-called “cryptowinter”. It saw the dramatic fall of Terra Luna and the bankruptcy of the US exchange platform FTX.

However, the fear did not last. The CNMV counted 394 shady financial companies in the year 2023, including the MIC. And the monitoring of compliance with the circular on advertising cryptoassets presented as investment objects led to 118 actions, reviewing a total of 641 advertisements (including web pages) and sending 114 requests.

Typically, scams that use cryptocurrencies as a lure use social networks to reach more users, especially younger generations who see these assets as a quick way to get rich without having to understand the markets. The profile of the cryptocurrency investor is male, aged 26 to 40, heavy user of social networks, choosing to spend less than 5% of their assets.

Regulation to Prevent Scams

Although the European Union was a pioneer in passing the first law for the regulation of cryptoassets on April 20, 2023, the truth is that it did not come into effect until six years after it was announced.

It took the outbreak of several scandals for the European Commission to go a step further with its legislation, such as that of FTX, which left an $8 billion hole and $3 billion in debt. The MiCA law, which will apply to asset-backed tokens (ART) and electronic money tokens (EMT) from June 2024, aims to regulate the issuance of cryptoassets, the provision of services and investor protection in these markets.

As a result, new service providers in the cryptoasset market will have to be authorized in advance to operate in the European Union, while those already operating will be in a transition period to adapt to the new conditions. Besides these regulations, there are others that tighten the siege on cryptocurrency fraud, such as new European anti-money laundering laws.

By Audy Castaneda

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