The Hidden Concerns Behind the Prosperity of the Encryption Asset Market

Recently, the prices of mainstream encryption currencies have surged significantly, sparking keen expectations in the market for a "spring of encryption assets" and a "super bull market." Many investors have begun to pour large amounts of funds into the encryption asset market, seeking opportunities for quick wealth. However, behind this prosperous scene lies risks that cannot be ignored.

On February 23, 2024, a cryptocurrency exchange claiming to be headquartered in Hong Kong quickly withdrew $57 million from its online encryption asset wallet, subsequently shutting down its website and disappearing without a trace, setting a record for the first major exit scam in the Hong Kong encryption asset space in 2024.

Analysis of the Running Process

This exchange is actually a product of the previous "Bifu Network" rebranding. As early as 2019, the platform artificially boosted the exchange's liquidity data through methods such as multi-account self-trading, cross-platform arbitrage, and fund circulation. In September 2023, the platform even claimed to be "one of the leading cryptocurrency exchanges in the world by market capitalization, with a daily trading volume of approximately $2.6 billion."

However, according to a report from a well-known third-party encryption asset crime research platform, as early as 2019, the real trading data of the exchange was only about one-eighth of its publicly available data. Despite the exposure of its 8000% fraud rate, the platform was still able to attract a large number of retail investors through frequent listings of small coins and market-making practices such as wash trading due to the lack of effective regulation.

Two days before the exit scam, the trading data of the exchange experienced a dramatic drop, with data on February 22 showing an almost "right-angle" decline, indicating obvious trading anomalies. Ultimately, on February 23, the platform withdrew approximately $56.5 million in encryption assets, including $54 million in TRB, $1 million in ETH, and $250,000 in USDC, before shutting down the website and cutting off all communication channels.

Investor Protection Recommendations

1. Stay away from unknown exchanges: Avoid being blinded by short-term high returns and ignoring potential risks.

2. Make good use of third-party data tools: Reasonably utilizing various data analysis tools can effectively identify abnormal behaviors on the platform and potential market manipulation. It is recommended to refer to the virtual asset reports regularly published by multiple data platforms as a reference for investment decisions.

3. Pay attention to personnel changes at exchanges: Significant personnel or shareholder changes at encryption asset platforms may indicate a shift in business strategy or preparations for a scam. For example, in this case, the CEO of the exchange suddenly resigned in January, stating that "a new leadership team will join," such information is worth investors' close attention.

Cross-Border Rights Protection Guide

For fraud cases related to cryptocurrency exchanges registered in Hong Kong, mainland investors can consider the following rights protection methods:

1. Report to the Hong Kong police or relevant agencies, provide account information, and request to freeze the involved accounts.

2. If there are significant losses and the account has not yet been frozen, a lawyer can be entrusted to apply for an emergency injunction from the Hong Kong court.

3. To recover the defrauded funds through civil litigation, the available causes of action include fraud, unjust enrichment, legally constituted trust or constructive trust, etc.

4. For evidence that is difficult to obtain on your own, you can apply to the court for a disclosure order through a lawyer to obtain relevant information and documents.

It is important to note that the asset recovery and loss mitigation system in Hong Kong differs significantly from that in mainland China. The judicial authorities in Hong Kong are primarily responsible for handling criminal cases themselves and do not directly take on the responsibility of recovering funds for victims. Therefore, victims often need to initiate separate civil lawsuits to recover their losses.

Conclusion

When participating in the encryption asset market, investors must exercise caution and not neglect potential risks for short-term gains. This is especially true for offshore trading platforms, which require extra vigilance. While there are still certain avenues for rights protection in fraud cases occurring in Hong Kong and Macau, the difficulty of recovering losses will significantly increase if the cases occur in other foreign jurisdictions.