For those following the cryptocurrency markets, there's a new shockwave. Government regulators have come down hard on My Big Coin, or MBC, calling it a "Ponzi scheme."

Not to automatically knock the technology. If you invested early in some cryptocurrencies, like Bitcoin or Ethereum, you made a bundle (assuming you got out at a relative high point). A business can make great use of a cryptocurrency once you're out of the speculative world. But many of those making money do so like the people who sold supplies to gold miners in the 19th century. That is, they sell the dream. And there are plenty of criminals in the space.

That brings us back to the charges against My Big Coin, which has run as a corporation in Las Vegas. According to the U.S. Commodity Futures Trading Commission -- the CFTC is one of the regulatory agencies that flies under the radar of most people -- the company was up to no good.

The CFTC Complaint charges Defendants Randall Crater of East Hampton, New York, Mark Gillespie of Hartland, Michigan, and My Big Coin Pay, Inc., a corporation based in Las Vegas, Nevada, with misappropriating over $6 million from customers by, among other things, transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods.

A litany of other charges follow along, including the following:

  1. The cryptocurrency was not being traded on multiple exchanges as the MBC site claimed.
  2. Because there was no trading, there was no trading prices. Instead, the site allegedly posted fake prices.
  3. MBC claimed to have a partnership with MasterCard and that the currency could be used wherever a MasterCard could, except no such arrangement allegedly existed.
  4. Any payouts to customers reportedly came from money paid by other customers, creating a classic Ponzi scheme.

The two defendants allegedly pulled the money out for themselves "to purchase a home, antiques, fine art, jewelry, luxury goods, furniture, interior decorating and other home improvement services, travel, and entertainment." A court order froze the defendants' assets

Multiple agencies have warned about some of the dangers in trading cryptocurrencies. According to the CFTC, multiple factors make the practice risky:

  • They are really cash markets that aren't regulated by governments.
  • Big swings in value are possible, which can mean quickly losing money as well as making it.
  • Inadequate security can leave platforms vulnerable to criminal hacking.
  • People can potentially game currencies and manipulate markets.
  • Platform owners can sell from their own accounts, putting customers at a disadvantage.

You can add another: If someone sits on a big block of cryptocurrency and suddenly starts unloading it, prices could collapse. Even with granddaddy Bitcoin, someone -- though to be the concept's secretive founder -- has at least 980,000 bitcoins in an account. Given that nearly 17 million bitcoins have been mined (created by solving complex crypto math problems), that would give a person 5.7% of the entire collection. That's enough to sway a market.

Also add that some governments have already begun to regulate cryptocurrencies and the trend is likely to continue, which would put a damper on things.

Nothing wrong in some speculation, so long as you don't risk more than you can afford to lose and keep an eye out for bad actors. If you can recognized them in time.

Published on: Jan 25, 2018