Bitcoin Interest Drops In China Amid Crackdown On Social Media And Miners
Xinjiang crypto miners forced to shut down, Antpool hash rates drop by 30%, and Baidu and Weibo try to scrub crypto players from their platforms. Bitcoin Interest Drops In China Amid Crackdown On Social Media And Miners
This week, following a tumultuous few weeks of regulation, the Bitcoin world’s focus shifted to Miami and Latin America. Searches for Bitcoin on China’s most popular social media app WeChat stabilized between 1 million and 3 million per day, a stark difference from the peaks of over 10 million that were seen in late May.
Weibo And Baidu Half Pulls The Plug
Baidu, China’s dominant search engine, restricted searches for exchanges Binance, Huobi and OKEx early in the week. Typically, large internet companies work under the watchful eye of government and party officials, making this move somewhat expected.
Filtering out keywords isn’t always the most effective solution, as searches for “Binance App Download” still take users to the requested link. It’s worth pointing out that the government has limited authority in these cases since most of these big exchanges, particularly Binance, are registered in other countries and have a limited physical presence in China.
More effective was the silencing of cryptocurrency influencer accounts on microblogging platform Weibo. According to reports on Cointelegraph, at least a dozen accounts were suspended with a message that they had violated relevant laws and guidelines.
This can have a much more sobering impact on the Chinese cryptocurrency community, as influencers are often a primary source of information, especially for users who don’t access traditional western social media platforms.
Western Province Slams Door On Miners
On June 9, a district government in western Xinjiang issued a “notice to immediately suspend virtual currency mining enterprises.” The report announced that companies engaged in digital currency mining must halt production by 2 pm on June 9 and report the suspension to a local reform commission.
This resulted in significant drops in global hashing power, with Chinese-backed Ant Pool dropping by more than 30%. The last month has seen a bevy of regulations against mining companies as China prepares to try and meet carbon emissions goals. Miners are still scrambling to adjust to new regulations, with many heading to more lenient countries like neighboring Kazakhstan.
In It For The Technology
The Monetary Authority of Singapore announced it has received over 300 applications for crypto payments and exchange licenses. Singapore is a common location for Chinese companies to domicile, as it is home to a thriving fintech sector but remains close to the mainland, both in terms of geography and cultural ties.
One of the companies disclosed was internet giant Alibaba. Alibaba has come under the microscope back in China for its lending practices, so it’s no surprise that Alibaba and other Chinese companies might want to diversify their financial offerings in other regulatory regions.
Accelerating The Pace Of Change
On June 7, China’s high-ranking Ministry of Industry and Information Technology issued guidelines on accelerating the application of blockchain technology in the industrial sector. It targeted 2025 as the year that blockchain should penetrate fields such as supply chain management and traceability for internationally competitive enterprises.
This will be of interest to a number of public and private chains that are able to develop within the confines of the Chinese regulatory framework. Despite cryptocurrency facing strong backlash, the Chinese government hasn’t backed down from its hopes for blockchain to be a driver of economic growth in the country.
For those looking to better understand China’s ambitions in this area, government-backed Blockchain-based Service Network hosted a webinar about China’s pursuits in emerging technologies. China technology experts Winston Ma and Paul Schulte covered a number of topics including blockchain technology, central bank digital currencies and even some more controversial geopolitical issues. Cointelegraph’s Man in Shanghai himself was on hand to moderate, keeping an unbiased eye on things.
Bank on it
On June 8, the Hong Kong Monetary Authority released a “Fintech 2025” strategy to enhance research on a central bank digital currency. The Hong Kong Monetary Authority is working with the Innovation Hub of the National Bank for Settling and Clearing to bring a CBDC to the retail level. This area is an interesting space to watch to determine how the e-HKD will be similar to the e-CNY, and what that means for the financial future of the region.
How China Rivals Elon Musk In Rattling Crypto Markets
Chinese regulators have long sought to tamp down risks related to the rise of Bitcoin and its peers. The cryptocurrency ethos runs counter to China’s aggressive centralized control of finance, and China is home to a large concentration of the world’s crypto miners, whose need for massive amounts of power complicates efforts to curb greenhouse-gas emissions.
The Chinese government’s latest and most explicit ban on all crypto transactions, as well as a pledge to stop illegal mining, is the culmination of years of attempted crackdowns.
1. What Are The Rules Now?
China’s central bank designated crypto-related transactions as illicit financial activity, including services provided by off-shore exchanges. It added that cryptocurrencies, including Bitcoin and Tether, are not fiat currency and cannot be circulated. Separately, the country’s economic-planning agency said it’s urgent to root out crypto mining to meet carbon goals, putting the activity back on a list of dirty industries it wants to eliminate.
2. What Led Up To This Point?
It’s targeted Bitcoin mining, the energy-intensive computing process involved in creating the digital currency and verifying transactions. It prohibited financial institutions and payment service providers from getting involved in crypto trades even tangentially — like opening a bank account for those who engage in them.
In 2017, China told exchanges to stop trading in cryptocurrencies and banned initial coin offerings, or ICOs, which are the equivalent of initial public offerings for new virtual currencies. In May, the State Council — China’s cabinet — called for a renewed crackdown on Bitcoin mining and trading activities. China’s central bank summoned officials from major state-owned banks and payment-service provider Alipay to a meeting in June to reiterate a ban on crypto-related services.
3. Is China Against All Digital Currencies?
No. While there’s no launch date yet, the People’s Bank of China is likely to be the first major central bank to issue a digital version of its currency, the yuan, seeking to keep up with — and control of — a rapidly digitizing economy. Unlike cryptocurrencies such as Bitcoin, the digital yuan won’t have any presumption of anonymity and its value will be as stable as the physical yuan.
4. What Explains China’s Concerns?
Cleansing risk from financial markets has been a government mantra for years, as evidenced in the crackdown on fintech giants including Jack Ma’s Ant Group Co. Cryptocurrencies can provide a way to move money out of China, potentially adding to outflows that officials have aggressively set about stemming.
As for mining, local governments have grown wary of the industry’s huge energy consumption — more annually than the entire country of the Netherlands — at a time Xi’s government has pledged to achieve carbon neutrality by 2060.
The trigger at the State Council meeting in May was said to be in part concern that crypto mining has stoked a surge in illicit coal extraction, following a jump in deadly accidents this year.
China Has Completed ‘Rectification’ of Crypto Transactions: PBOC
The country’s central bank has warned banks and payment services providers to stay away from virtual currencies.
The People’s Bank of China said a crackdown on crypto transactions has been completed.
* Virtual currency transactions have been “rectified” and supervision has returned to normal, the central bank said in its 2021 Financial Stability Report.
* The report grouped crypto along with other internet finance activities of concern, including peer-to-peer lending, online asset management and crowdfunding.
* The PBOC and other authorities have been cracking down on crypto industries since mid-May, enforcing its anti-crypto stance from 2013 and 2017.
* Mining was the first area of focus, with the State Council calling for a crackdown in May. Local and provincial authorities followed suit, and major mining hubs in the country have gone offline.
* Authorities and state-sanctioned industry associations have also warned against conducting or enabling virtual currency transactions and trading.
China’s Latest Crypto Crackdown Draws Yawns From Bitcoin Market Vets
It may be China’s most comprehensive crypto ban to date, but insiders are unfazed.
A fresh crackdown by Chinese authorities on cryptocurrency trading sent bitcoin tumbling on Friday.
But to veteran traders and analysts in the notoriously volatile market, it all seemed like a big bag of déjà vu – the seventh, 100th or “eleventy-seventh” time (in one analyst’s words) that China has cracked down on crypto.
Bitcoin’s price was down about 4% over the past 24 hours to about $42,150. That’s still up from about $29,100 at the start of 2021, for a 45% year-to-date return. That’s more than double the gains of the S&P 500 index.
Here’s What Cryptocurrency Analysts Are Saying:
Ulrik K. Lykke, Executive Director At Crypto Hedge Fund ARK36:
“Yet again, the Chinese government has cracked down on bitcoin. Since 2013, it has done so at least seven times now – and twice this year already. While each time this happens, the markets react with a price drop, each time the effect is smaller and more short-lived. The ‘China bans bitcoin’ story has gained almost a meme-like status in the bitcoin community because of this.”
Haohan Xu, CEO of Apifiny, A Digital-Asset Trading And Mining Network:
“China’s latest move is not surprising given its history of anti-crypto actions. … If China continues to enforce at this magnitude, crypto trading will shift to venues in countries with more stable regulatory environments, which means more predictable liquidity and healthier, more robust trading across the globe.”
George Zarya, CEO At Digital-Asset Prime Brokerage And Exchange Bequant:
“For the institutional crypto industry it won’t change much, as those who could leave already left, and those who couldn’t have either closed or gone under the radar. The retail market most likely has gone under the radar and will continue to support market volumes.”
Anthony Pompliano, Investor At Pomp Investments:
“It would seem like a negative thing to have China ban bitcoin and cryptocurrencies, but the market barely cares after the 100th time.”
Mati Greenspan, Founder Of Quantum Economics:
“China bans bitcoin. This must be the eleventy-seventh time they’ve done this. Anybody still using bitcoin there is already underground, so now they’re a criminal too. Big whoop.”
Craig Erlam, Senior Markets Analyst, Oanda:
“China’s opposition to cryptocurrencies is nothing new, but the latest clarification would suggest those involved are at risk of prosecution. China’s actions haven’t held back crypto’s rise too much in the past, so I wouldn’t be surprised to see it bounce back once more.”
Fundstrat, An Independent Investment Research Firm:
“While we are witnessing an immediate sell-off, there does appear to be buying support coming online as market participants digest the information.”
Freddie Williams, Sales Trader At GlobalBlock:
“We’ve seen little in the way of knee-jerk reaction from clients surrounding this news from China. We’ve also seen this before from China, where news of bans have been reported over the years, but it has not prevented adoption of bitcoin and digital assets from continuing their upward trend.”
Crypto Has Recovered From China’s FUD Over A Dozen Times In The Last 12 Years
Since 2009, China and Hong Kong have “banned” or otherwise caused FUD in the crypto space on 19 separate occasions and counting.
The price of Bitcoin fell 5% today following “breaking” (read: weeks old) news that the People’s Bank of China, or PBoC, had declared all cryptocurrency transactions illegal.
With that in mind, let’s take a nostalgic look at the last 12 years of FUD out of China, and see if we can spot any patterns.
China banned ‘virtual currencies’ for the first time in 2009
1: Chinese regulators have never exactly been crypto advocates. When blockchain-based digital currencies were still in their infancy, i.e. 2009, China’s Ministry of Culture and Ministry of Commerce barred the use of “virtual currency” for trading real world goods.
Though not specifically targeting Bitcoin (BTC), the move did seemingly set the precedent for a decade of anti-crypto regulations.
The First Bitcoin-Specific Ban Hit In 2013
2: In 2013, the PBoC prevented Chinese financial institutions from handling BTC transactions and called crypto a currency without “real meaning.” The news caused the price of BTC to drop under $1,000 at a time when BTC China, or BTCC, was the largest crypto exchange by volume.
The asset returned to form within a few weeks.
Fake Ban Threats Plagued 2014
2014 taught us that fake reports from PBoC regulators are sometimes just as effective as real ones.
3: In March, a fake news story published to the Sina Weibo website claimed China’s central bank planned to stop all Bitcoin transactions in the country starting in under a month. While the report turned out to be nonsense, it didn’t stop Bitcoin’s price from cascading.
4: At roughly the same time, China-based crypto exchange FXBTC said it would close its doors amid threats from regulators to ban exchanges. A combination of both incidents may have been responsible for Bitcoin’s fall from $709 to as low as $346.
Though admittedly bloody, the price began to recover in short order and was back above $600 by the end of May.
A Chinese Exchange Hack Briefly Tanked Prices In 2016
5: Though not directly controlled by China, major Hong Kong-based crypto exchange Bitfinex was the victim of one of the largest hacks in August 2016. Attackers stole roughly 119,756 BTC — worth more than $5 billion at the time of publication — and some of the funds are still being tracked to this day. At the time, news of the major exchange hack is thought to have caused the BTC price to drop more than 10% over two days.
By September however, prices had risen back to their pre-hack levels.
In 2017, China Dropped Crypto-Related Bans Twice In A Single Month
6 & 7: In September, China’s government officially banned exchanges from servicing users within the country, and the PBoC announced that Chinese citizens would not be allowed to fund initial coin offerings.
It took three months for Bitcoin to move from the $4,000s to a then-all-time high price of roughly $20,000.
8 & 9: The cryptocurrency was heading towards one of its biggest bull runs ever when BTCC said it was shutting down amid the government “ban,” (it’s still in operation), and the PBoC deputy governor claiming “Bitcoin’s body” would float down the river one day.
Crypto was already on its way to recovery by this point, and experienced only minor dips.
Media Reports Led To A Short Crypto Crisis Of Faith In 2018
10: In January 2018, reports circulated that Chinese nationals may have caused a crash in major cryptocurrency prices.
11: Though many argued that the fall was due to Chinese media reports, which claimed that the country was cracking down on crypto mining. By mid-February, the price of Bitcoin had dropped more than 65% to reach $6,852.
This didn’t last long though; the price was back at more than $11,000 by the end of the month.
The FUD Raged On In 2019
12: The price of Bitcoin dipped slightly in April 2019 as a draft from China’s National Development and Reform Commission revealed the government body was considering banning mining in the country… again.
13: The PBoC followed this move with the announcement tcrypto trading would be “disposed of immediately” upon discovery.
Despite a brief price set back, fresh all-time highs would soon be on the horizon.
China Was Allegedly Behind 2020’S ‘Crypto Bloodbath’
14: March 2020’s “crypto bloodbath,” in which the price of nearly all major tokens nosedived at the beginning of the COVID-19 pandemic, was believed to have been largely caused by Chinese miners liquidating their holdings.
15: Hong Kong’s government announced plans to ban retail crypto trading as part of its efforts to crack down on money laundering in November 2020.
The first year of COVID concluded with Bitcoin breaking the $20,000 barrier for the first time in three years, hitting an all-time high of more than $30,000 before 2020 ended.
FUD Comes To Present Day
16: The National Internet Finance Association of China, the China Banking Association, and the China Payment and Clearing Association issued a statement warning against investing in cryptocurrencies given the potential risks in May 2021.
17: The following month, the PBoC ordered Chinese banks and mobile payment service providers not to provide banking and settlement services to clients engaged in crypto-related transactions.
18: Then in June, officials issued a bonafide mining ban, leading to a still-ongoing mass exodus of miners from the country.
19: That brings us to today, when once again the PBoC has declared that all cryptocurrency transactions in China are illegal.
The Total Number Of Times China Fud Has Failed To Kill Crypto: 19
Including today’s message from the PBoC, there have been 11 messages directly from Chinese and Hong Kong regulators enforcing or hinting at enforcing a ban on crypto, exchanges, or mining, 8 major incidents of fake news stories or media coverage out of China otherwise influencing the crypto markets, and a handful of other incidents — such as hacks and decisions by crypto businesses in the country — which caused dips.
Altogether, since 2009, China has “banned” or otherwise caused FUD in the crypto space on more than 19 separate occasions.
Data from Cointelegraph Markets Pro shows that the price of Bitcoin fell more than 5% in the last 24 hours, but is currently back above $43,000 at time of publication.
A Timeline of China’s Crypto Crackdown Shows A Global Shift In Power
China’s multiyear crackdown on the crypto industry may have reached its apex Friday, cementing a shift in the balance of power away from one of the countries that first embraced the digital currency world.
The People’s Bank of China vowed to end illegal mining and stop offshore exchanges from conducting business with its citizens — spurring a wipeout of as much as $159 billion in the market value of digital currencies from Bitcoin and Solana to XRP.
“This is the latest and perhaps final stage of the Chinese government’s crackdown on crypto,” said Jehan Chu, founder of investment firm Kenetic Capital in Hong Kong. “China has been consistent about its desire to rid itself of free trading in cryptocurrencies and emphasize more controlled projects.”
Once a cradle of the industry, China — under the Communist Party’s leadership — has since pushed crypto to the fringes with some of the harshest regulations among large economies. After chasing out local exchanges, banning crypto services by financial firms and more recently weeding out miners, the center of crypto power is now developed markets.
One Telltale Sign: On trading platforms Binance and FTX, volumes for popular derivatives known as perpetual futures surges on average at noon in New York, or 5 p.m. in London, according to data provider Kaiko.
Bitcoin dropped as much as 9% and Ethereum 13%, with losses paring somewhat as of 10:32 a.m. in New York.
It comes as countries around the world tighten the regulatory screw with the U.S. threatening industry players with lawsuits or cease-and-desist orders. But China’s stance is unequivocally hardline — dovetailing with the Chinese Communist Party’s bid to bring key industries to heel from online gaming and tutoring to high-frequency trading.
It’s been quite the journey. In the first phase of Bitcoin’s rise since its 2009 inception, China was the base for the biggest miners and exchanges as well as a horde of active speculators. There were also signs people used digital currencies to skirt a cap on taking money out of the country, especially when the yuan was depreciating.
But the 2017 crackdown on Chinese exchanges changed all that. It prompted some like Huobi, OKEx and Binance to move their operations abroad, and by now, Chinese onshore traders’ participation in centralized exchanges is minimal.
Any remaining activity is hard to trace as it will probably be conducted via virtual private networks that obscure the user’s location, says Clara Medalie, research lead at data provider Kaiko. Some also trade on over-the-counter venues.
Still, Friday’s moves represent a further crackdown on even these alternative channels. Before China outlawed crypto exchanges in 2017, local investors held an estimated 7% of the world’s Bitcoin and made up roughly 80% of trading, according to state media.
“News out of China definitely impacts markets because it can shake market sentiment, but the actual effect of another Chinese ban has minimal impact on underlying market structure at this point,” said Medalie.
At the same time, the country has remained supportive of the blockchain technology that underlies Bitcoin, as well as — naturally — its own digital yuan, which has been enthusiastically promoted by the People’s Bank of China.
“China might still be setting the scene for its own central bank digital currency, and therefore wants to clear the plate for what will be a centrally controlled but blockchain-denominated coin,” Justin d’Anethan, Hong Kong-based sales manager at crypto exchange EQUOS, wrote in a message. “Or maybe it’s simply trying to actively fight capital flowing out in a period of need.”
At Bequant, a crypto prime brokerage, head of research Martha Reyes says the Friday selloff was probably exacerbated by widespread caution after a Sept. 7 plunge as well as options expiring Friday.
Funding rates, or the interest paid by bulls to trade futures, have been falling recently, and $2.9 billion of outstanding options were set to expire Friday, according to the Deribit exchange. It’s an event that some say has typically fueled volatility.
An index of Bitcoin volatility jumped from 80 to as high as 91 over the course of Friday, Deribit data show.
Even as the influence of Chinese traders’ wanes, the country’s bid to avert a property debt crisis has demonstrated immense sway on both global stock and crypto markets this week. The 50-day correlation between the S&P 500 and Bitcoin has been consistently positive this year, jumping to the highest since October recently.
“The sentiment was quite fragile anyway,” says Reyes. “We started the week with China FUD and we’re ending the week with China FUD,” she said, referring the crypto slang for fear, uncertainty and doubt.
China Crypto Crackdown Showcases Global Unease With Asset Class
China’s ban on cryptocurrencies: debilitating blow, or just a minor battle lost in the larger war for acceptance? Investors are divided.
Digital currencies sold off after China’s central bank said all cryptocurrency-related transactions were illegal, according to a Q&A statement on the People’s Bank of China’s website. Bitcoin, the largest digital coin, fell as much as 8.9%, while Ether lost near 13%. The Bloomberg Galaxy Crypto Index, a gauge of some of the most-prominent cryptos, lost as much as 11%.
“It’s the latest move in a multi-year clampdown on Bitcoin and cryptocurrencies,” said Antoni Trenchev, managing partner and co-founder of Nexo, a crypto lender. “For now, Bitcoin can’t catch a break. Bitcoin is being bombarded from all sides.”
Here’s How Market-Watchers Reacted:
Chen Arad, Chief Operating Officer At Crypto Risk Surveillance Firm Solidus Labs:
“Though China’s move is particularly dramatic, it reflects on similar concerns regulators globally are sharing surrounding crypto market integrity and its role in illicit activity. Manipulation and fraud is not unique to crypto but, as a new asset class, digital assets present new challenges and have more to prove to regulators and the public.”
Brent Donnelly, President Of Spectra Markets, And A Former HSBC FX Trader:
“Solana Summer is over, the Loot frenzy looks like a major peak for NFT (non-fungible token) mania, the El Salvador launch on September 7 was the ding dong high for BTC (predictably),” he wrote. “It will be interesting to see how crypto trades in Q4 in the face of reduced global monetary accommodation and a lack of fun stories. My guess is that crypto struggles for a while.”
Steven McClurg, Chief Investment Officer At Crypto Fund-Manager Valkyrie Investments:
“China has banned crypto at least a dozen times this year. The volatility we are seeing today may be a knee-jerk reaction by some, but most market participants have already priced a China ban in from the beginning of the summer.”
Chris Dick, A London-Based Quant Trader At Crypto Trading Firm B2C2:
“If the headlines are just stronger wording ahead of China’s own digital currency, or if China is just reiterating it’s stance on mining, then there is no lasting effect here,” he said. “If, on the other hand, the crackdown affects key market infrastructure such as the major exchanges then the market volatility is set to increase further.”
George Monaghan, Analyst At Globaldata’s Thematic Team:
“China ruling crypto transactions illegal would be disastrous for the cryptocurrency sector. Being excluded from the world’s largest market is terrible for any product, and this is the strongest demonstration yet of China’s anti-crypto sentiment,” Monaghan said.
“However, this isn’t the first time China has threatened action, and, thus far, it has failed to follow through. The next few weeks will be rough for crypto markets that were already on edge after the SEC’s recent comments, but only actual legislation will have a long-term effect.”
Alex Tapscott, Managing Director Of The Digital Asset Group At Ninepoint Partners:
“Veteran traders are conditioned to shrug off bad news from China and buy the dip, but could this time be different? There are a few reasons to think so,” including China’s tech crackdown, as well as its pursuit of its digital yuan, among other factors.
For $200, You Can Trade Crypto With A Fake ID
A black market is flourishing for “verified” accounts on major exchanges including Coinbase Pro and Binance US, a CoinDesk investigation found.
For law-abiding cryptocurrency users, getting verified to trade on an exchange is a painstaking process. They must give out a wealth of personal data, including their home addresses, scans of government-issued ID, and photo or video selfies.
For criminals, it’s easier. They can pay as little as $150 on the black market for a ready-to-use, verified account in someone else’s name at Coinbase Pro, Binance US, Kraken or numerous other exchanges, a CoinDesk investigation found.
To be clear: “verified” in this context does not mean legitimate. Underground vendors create these accounts with other people’s identities or under made-up names, tricking the exchanges into verifying them as valid users. They then advertise these verified accounts for sale on internet forums and on Telegram.
Besides crypto exchanges, the vendors also offer fraudulently created accounts for use with mainstream payment providers such as Square’s Cash App and Transferwise.
“We are producing from 1,500 to 2,000 synthetic verified accounts each month,” an operator of one such service told CoinDesk in an interview via the Telegram messaging app.
This service has multiple employees and even “departments” within the business, said the person, who refused to give a name. And it has no shortage of competitors, CoinDesk’s investigation found.
A CoinDesk reporter reviewed a sample of crypto and payment accounts that had been purchased from several black-market vendors. The exercise revealed these vendors are, in many cases, trafficking in sensitive information about people who likely have no idea their names are on the accounts.
It also showed how people who, for whatever reason, don’t want to expose their real identities or fear they wouldn’t be approved for an account can skirt the industry’s customer-vetting processes – at least, up to a point.
While it’s difficult to gauge the size of this market – criminals don’t typically publicize their revenue, after all – it appears to be flourishing.
“We’ve observed a staggering amount of threat actors advertising and brokering fraudulent accounts for both crypto exchanges and payment services,” said Andrew Gunn, senior threat intelligence analyst at ZeroFox, a cybersecurity firm based in Baltimore.
Over the past 12 months, ZeroFox found over one million posts on forums and Telegram messaging-app groups advertising accounts for sale, Gunn said.
The fact that you can buy a fake digital identity for around $200 raises fresh questions about the effectiveness of “know your customer” (KYC) policies implemented by crypto businesses around the world.
While everyday users often have to submit the same information multiple times for reverification and wait for weeks or months to withdraw their money (even Martha Stewart reportedly waited two weeks to get verified), bad actors can sneak in easily.
In Plain Sight
Black markets thrive both on the so-called dark web, which is accessible through the anonymizing Tor browser, and on the clear web or surface web – the part of the internet most of us browse every day.
Here, in plain sight, are live forums populated by professional hackers, scammers of all sorts and sellers of illegal goods. To name some, Russian-speaking forums such as Ver.sc (short for “Verified”) and CCCC.sb are focused on illegal identity-related services such as “carding” (trafficking in stolen or counterfeit credit card numbers).
On these platforms, one can easily find for sale accounts for use on a diverse range of crypto exchanges and payment services, from peer-to-peer trading platform Localbitcoins to professional trading venue Coinbase Pro to mainstream payment services CashApp, Transferwise and Revolut.
Prices, ranging from $150 to $500, are disclosed to a prospective buyer in a personal chat or posted on a price list like the one on this web page. To buy an account, one needs to get in touch with a vendor (often via Telegram), pay in crypto (usually bitcoin) and get the requested account data.
Sometimes the accounts originally were registered by legitimate customers and have been hijacked by hackers. (For a buyer of such an account, there is always the risk that its actual owner will notice something weird is going on and flag it to the platform administrator.) Sometimes vendors create accounts from scratch using stolen or fake data. Sometimes users register accounts in their own names and then turn them over to vendors to sell.
According to posts on the forums and conversations with some of the vendors, they go through the exchanges’ verification process to open accounts, and control the accounts until they are sold. People whose information is used for registering with the services might not even know the accounts exist.
On the same forums where some vendors offer these fraudulent accounts, others look to hire “drops,” or individuals willing to lend their identities for account registration. Meanwhile, people willing to fill this role search for “job postings.” There are also multiple offerings of counterfeit IDs.
Lend Me Your Face
The job of a drop is well explained by a recent dialogue on the CCCC.sb forum (the posts are translated from Russian).
“Looking for a job as a money launderer. Send offers to my DM,” one user wrote in July.
“Of a drop,” corrected another user in a reply before describing the role: “Only your face is needed. To pass video verification via WhatsApp. From 1,500 to 2,000 rubles [$20-$28] for a pass, you can do several passes a day.”
“The task is to pass verification on an exchange in real time. You can use your passport/driver’s license/foreign passport. Also gonna need to take a selfie. You get 500 rubles [around $7], after the successful verification,” says another post on the Bhf.im forum, adding that a “job seeker” will just need to give a full name and date of birth and then click on a link.
The poster used a photo of the rapper Lil’ Pump as their profile picture.
More often, vendors do not advertise exact prices for such services in the postings but convey them one-on-one via chat.
Some vendors act as middlemen, offering to connect users with drops, much as a ridesharing app matches passengers with drivers. One ad boasts that the drops are available to work at any time.
But sometimes you don’t even need anyone’s real personal data to verify an account, the vendor who spoke to CoinDesk said: You can make things up.
“It’s a vulnerability KYC systems have. If you know how to generate [synthetic] data, you use it. KYC systems are not a customs checkpoint with a shared database and verified information about any potential user,” they said.
Buyers can buy accounts registered under whatever names vendors have in hand or order custom accounts based on personal data (“fullz”) they themselves, by whatever means, have obtained.
Some vendors promise they will do all the necessary research on the real people whose data is being used, including credit and background checks.
If nothing works, they stand ready to search for people with the same names, even when a person whose name is being used is older than 90, vendors say in advertising posts.
“Working with us means we’ll do our best to verify accounts: selecting a model of suitable age, searching for namesakes and trying to achieve results,” one vendor wrote in a Telegram post illustrated with a cheeky meme.
In another post, the vendor describes software that allows the creation of fake selfies, including video.
“We do live selfies. 3D biometric is possible for us. take photos with id cards. print any docs. we can be anyone you need,” the same vendor advertised on the paid forum Ver.sc.
Some of these vendors just post from time to time that they have a good account for sale or are looking to buy some. Others run regular shops, with dedicated teams and customer support done via Telegram. Their posts are followed by testimonials from satisfied customers.
CoinDesk reviewed a sample of accounts at exchanges Binance US, Coinbase Pro and Kraken and payment services Cash App and Wirex that were available for purchase on the black market. The accounts had been put up for sale by several different vendors. The prices of these accounts ranged from $170 to $250, all paid in bitcoin.
Along with login credentials, these accounts came with private data of the purported account owners, all of whom appeared to be genuine U.S. or European Union residents. The data included dates of birth, street addresses and, in the case of the U.S. residents, Social Security numbers.
Most of the accounts came with instructions for using a virtual private network (VPN) to disguise an IP address so an exchange would think a user was logging in from, say, Miami instead of Moscow. In some cases, vendors included credentials for a Gmail account (with Google Voice phone number), presumably for multi-factor authentication (MFA) when logging into the financial service – and a recovery email address in case Google asks for verification, too.
After reviewing the accounts, CoinDesk contacted the crypto exchanges and payment services to check their authenticity. None of the companies would say whether the accounts were genuine, explaining they can’t comment on individual accounts.
Binance US sent CoinDesk an email signed by “Binance U.S. PR,” saying the company “believes this to be a fake account.” The exchange did not respond to a follow-up question asking whether by “fake” the representative meant it was nonexistent or fraudulently created.
CoinDesk searched online databases such as Spokeo, SearchPeopleFree and ClustrMaps and found four people whose names, years of birth and cities matched those on the black-market accounts. Two of those people had matching street addresses as well.
Attempts to contact these and other individuals whose names were on the reviewed accounts by phone, email and social media were unsuccessful, and CoinDesk has mailed them letters to alert them their data is potentially being abused.
We also called the phone numbers used to register the accounts – all of them except one turned out to be Google Voice numbers, meaning they are virtual numbers generated by Google. Users can register virtual phone numbers without getting contracts with a mobile provider. This has made Google Voice numbers a handy tool for scammers.
The email addresses associated with the accounts did not match the names under which the accounts were registered, and instead contained random-seeming combinations of names and numbers.
Made To Order
“It’s quite hard to evaluate the total volume of this market, as we are probably the only public example of such a business with departments and streamlined processes,” the vendor who spoke to CoinDesk said.
“Our colleagues who are running similar businesses are either running very small enterprises or selling accounts of real people, who are either going through some hard times or have been deceived,” they added.
But ZeroFox’s Gunn said the market for these accounts for sale is vast, with some Telegram channels counting thousands of members.
“The sheer amount of threat actors specializing in this has even driven prices down to very reasonable levels (anywhere from $50 to $300 per account, depending on the exchange or service in question),” Gunn said.
While Gunn’s research focuses on Eastern Europe, he said stolen, hacked or artificially created accounts at payment services or crypto exchanges are sold all over the world and advertised in multiple languages.
In addition to ready-to-use accounts, the black-market vendors offer “on-demand, almost a la carte services, based on customer needs,” Gunn said.
They can help their “clients” register fraudulent accounts by selling compromised personal data or “offering support during any step of the verification process,” including digital rendering of faces to pass photo and video verification, which major crypto exchanges often require.
‘Go Here, Click This’
ZeroFox identified at least one case when a group was hiring individuals on a freelance job platform to do account creation and verification, and then hand those accounts over, for as little as $5-$10 for each pass, Gunn said. The group was giving precise instructions to the people willing to do the job: “go here, click this, use this ID,” Gunn said.
Further investigation showed the group managed to create and sell “thousands of verified accounts” on a single platform, he said. Gunn would not name that platform.
Getting fraudulent accounts is a slam dunk for criminal groups, Gunn said. “These accounts are very easy to come by, relatively cheap and disposable, so in the criminal underground it’s very trivial to buy as many as you want. And if you lose one account you just buy another one,” he said.
For services, finding and shutting down fraudulent accounts can get extremely tricky, Gunn said.
“Some of these accounts are dormant until money moves through them, and if a real person verified them how would they know?” he said. “Security measures [implemented by the platforms] are pretty good, but there is always a way around.”
It’s unclear how long such accounts remain operational until a service notices something suspicious and shuts them down. The lifespan of an account depends on the way it’s being used, the black-market vendor told CoinDesk.
“We are providing an account that essentially looks no different from the one you or your friend would register. They are fully compliant with the KYC requirements, except they are fully synthetic,” the person said, adding that users’ own reckless behavior, rather than the quality of the account, can trigger exchanges’ fraud alerts.
Gunn agreed that it’s possible for the buyer of a synthetic account to fly under the radar. “If they took precautions to blend in with normal behavior (not exceeding transaction amounts, etc.), leveraged residential proxies matching the information and geolocation of the victim, to name a couple of items, the accounts might last indefinitely,” he said.
The trade in crypto exchange accounts is just a subset of a larger global black ID market. According to a 2020 report by the cybersecurity firm Digital Shadows, there are more than 15 billion credentials in the world for sale, and the most valuable are “bank and other financial accounts,” which sell for $70.91 each, on average.
This is dwarfed only by the prices of domain administrator access to corporate systems, where the price tag can go up to $140,000, Digital Shadows said.
Apparently, illegal access to cryptocurrency services is valued somewhere in the middle, with some accounts sold for as high as $500 each.
Some platforms CoinDesk contacted confirmed they were aware of the black market for their accounts.
“We have team members dedicated to monitoring the dark web for accounts stolen through malware or phishing, as well as ‘mule accounts,’ which are put up for sale as fronts for criminals to launder funds,” a spokesperson for Kraken told CoinDesk via email. “Depending on the situation, we can either restore the account back to the rightful owner or disable it with immediate effect and take appropriate action as necessary.”
At Coinbase, a threat intelligence team “monitors darknet markets and other cybercriminal forums,” the Nasdaq-listed exchange’s senior manager for communications, Jaclyn Sales, told CoinDesk.
“Like any other financial institution, Coinbase implements measures to protect accounts from fraudulent actors. For security reasons we do not disclose specifics of those measures, as we do not want to provide fraudsters with information that could be used to bypass those controls.”
Binance US’s press representative told CoinDesk via email that the company is closely watching how users are logging into their accounts each time they use them.
“Our risk management system collects a wide array of signals during account opening, subsequent logins and during each account interaction, and we monitor these signals to identify potentially high-risk accounts or related activity and prevent malicious behavior,” the spokesperson told CoinDesk.
A CashApp spokesperson said the company is also monitoring users’ behavior to detect potential fraud.”In addition to our standard customer information and verification programs, we use various behavioral signals, information provided by our customers and various vendors, as well as transactional patterns to analyze and detect when accounts may be suspicious for various bad activity, including fraud and identity theft,” the company said in a written statement to CoinDesk.
Gunn’s firm ZeroFox is helping payment app company Wirex to “track and take down impersonations of Wirex, and those malicious actors claiming to sell Wirex accounts on the dark web,” Wirex Communications Manager Lottie Wells told CoinDesk via email.
The offerings, according to her, are abundant.
“Between the beginning of June and [September], we have monitored nearly 400,000 links, accounts and posts, we identified and remediated (blocked, took down, deleted, etc.) over 1,500 pieces of content. In fact, 32% of this was specifically from the dark web,” Wells said.
To prevent fraud, Wirex employs “a range of compliance, tech and security measures,” depending “on the risk profile of a user, the nature of transactions and our third-party partners who support us on evaluating external conditions,” Wells said.
“We also work closely with regulators to mitigate account takeover risks, and report them where necessary,” she added. “Any customer accounts that may be compromised are quickly blocked and protected, while our customer support team works with our customers to protect their accounts.”
CoinDesk also asked cryptocurrency exchange Huobi as well as payment services Transferwise and Revolut, for comment. All of them are mentioned in the ads posted by fraudulent-account vendors.
TransferWise spokesperson Chris Monteiro said that the company works with law enforcement “to help prevent further illegal activity” when it learns about “specific organized fraud cases.”
“For our customers, if they feel they have been a victim of fraud they should report it to the police immediately, and we encourage them to get in touch with us straight away,” Monteiro added.
Huobi declined to comment. Revolut did not respond by press time.
The target audience for these accounts for sale are people involved in other criminal activities, Gunn said.
“Threat actors that are purchasing the created and verified accounts are leveraging them for whatever criminal activity they do, whether it’s a carding operation or selling malware or gift card scam,” he said. “This is one part of the process that helps them to stay anonymous rather than having crypto accounts on their names on those exchanges.”
The vendor who spoke to CoinDesk used more delicate language, saying users avail themselves of its services to avoid “taxation risks.”
As law enforcement agencies around the world adopt blockchain-sleuthing software, it makes even more sense for criminals to cover their tracks by buying and selling crypto through accounts registered in others’ names, Gunn said.
Sergey Mendeleev, founder of Estonia-registered crypto exchange Garantex and CEO of investment platform InDeFi, explained to CoinDesk how these “mule” accounts might be used to obscure the connection between crypto and its actual owner.
“If you buy monero for fiat, then withdraw it and then deposit via another account, you can sell it for bitcoin and get clean, exchange-originated bitcoin, not connected to the previous transactions. This scheme is quite popular, and there are tens of others,” Mendeleev said.
Another reason there is demand for synthetic accounts can be as simple as this: People living in countries sanctioned by the U.S. and EU or with prohibitive anti-crypto regulations can’t register under their real names on the major crypto exchanges.
Sergey Zhdanov, chief operating officer of London-registered crypto exchange EXMO, told CoinDesk his company has caught some users faking their KYC data. The users explained they were based in territories under international sanctions, so they wouldn’t be able to register with their real IDs, he said.
“Some users just honestly admitted that they were based in the DNR [Donetsk People’s Republic, a disputed area in southeastern Ukraine] or North Korea, so they bought their documents [to register]. We block such accounts,” Zhdanov said.
China, which has been aggressively pushing crypto out of the country, appears to be a new growth market for the bogus ID business. Dovey Wan, founder of the Primitive Ventures crypto fund, told CoinDesk the market for verified accounts for Chinese users is “vibrant.”
The vendors “advertise in Telegram groups as ‘KYC service,’” Wan said, adding that “you simply ask in the Telegram groups (mostly in Chinese ones) that ‘I want a KYC service’ [and] people will pop up.”
The vendor CoinDesk spoke to confirmed their service is becoming popular in China: “At the moment, we’re seeing interest in our services from Chinese people. No need to explain, I guess. 🙂 “
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