Is the Spring of the Encryption Asset Market Coming? Beware of Potential Risks

Recently, the significant rise in the prices of mainstream encryption currencies has sparked a general sense of optimism in the market. Many investors believe that the long-awaited "encryption asset bull market" has finally arrived, and they are pouring large amounts of capital into the market in search of high returns. It is worth noting that Bitcoin's strong performance has also driven up the prices of other smaller encryption currencies.

However, in the current situation where opportunities and risks coexist, some criminals have also turned their attention to cryptocurrency investors. On February 23, 2024, a cryptocurrency exchange claiming to be headquartered in Hong Kong quickly withdrew $57 million from its online wallet and shut down its website, marking the first large-scale exit event in Hong Kong's cryptocurrency asset sector in 2024.

Case Study: Scam Tactics of a Certain Exchange

Although this exchange is not well-known, it is actually just a product of a rebranding of a previous trading platform. As early as 2019, the exchange artificially inflated its trading volume through methods such as multi-account self-trading and cross-platform trading. By September 2023, the platform even claimed to be "one of the leading cryptocurrency exchanges in terms of global market capitalization, with a daily trading volume of approximately $2.6 billion."

However, according to a research report by a third-party data analysis agency, the actual trading data of this exchange is only about one-eighth of its publicly available data. Nevertheless, due to the lack of effective regulation, the platform can still attract retail investors by frequently launching small cryptocurrencies and engaging in wash trading.

Two days before the exit scam, the trading data of the exchange experienced a dramatic decline, with trading volume being exceptionally noticeable. Ultimately, the platform administrator disappeared after withdrawing approximately $56.5 million in encryption assets from its online wallet.

How can investors avoid pitfalls?

1. Stay away from small exchanges: Investors should carefully choose trading platforms and avoid being tempted by short-term high returns while neglecting potential risks.

2. Make good use of third-party data tools: Properly utilizing professional data analysis platforms can help investors identify abnormal behaviors of exchanges. For example, in this case, if investors had checked the standardized trading data, they would have discovered that the actual trading volume of the platform was far lower than its publicly available data.

3. Pay attention to personnel changes in exchanges: Significant personnel changes in encryption asset platforms may indicate changes in operational strategies or potential risks. In this case, the CEO of the exchange suddenly resigned a month before the platform's exit, which may be a warning sign.

A Guide for Mainland Investors to Protect Their Rights in Hong Kong

For the losses caused by cryptocurrency exchanges registered in Hong Kong, mainland investors can consider protecting their rights through the Hong Kong judicial system:

1. Report or file a complaint with the Hong Kong police or relevant authorities, providing account information and requesting to freeze the accounts involved in the case.

2. If the amount of loss is significant, you may entrust a lawyer to apply for an emergency freeze order from the Hong Kong court.

3. Consider initiating civil litigation on grounds of fraud, unjust enrichment, or legal construction of trust.

4. Apply to the court for a disclosure order through a lawyer to obtain the necessary evidence.

It is important to note that the judicial authorities in Hong Kong, when dealing with economic criminal cases, are primarily responsible for establishing the facts of the crime and imposing penalties, rather than directly recovering funds for the victims. Therefore, victims usually need to file a separate civil lawsuit to recover their losses.

Conclusion

For investments in offshore encryption trading platforms, investors must remain cautious. Remember not to overlook potential risks for short-term gains, as recovering losses can be extremely difficult, especially in foreign jurisdictions, in the event of fraud. In the cryptocurrency asset market, rational investment and risk management are always the top priorities.