The bear-market brings with it some rare positive consequences, as well as negative ones, of course: crypto scams are declining right now.
This is what the on-chain analytics company Chainalysis notes, according to which they were reduced by as much as 65% in the first half of 2023.
Bear-market causes crypto scams to decline
The real bear-market of 2022 began just over a year ago, namely in May 2022, with the implosion of the Terra/Luna ecosystem that generated the first collapse of crypto markets.
To be fair, crypto market capitalization had already started to fall earlier, after the speculative bubble of late 2021, but without collapsing more.
After peaking at nearly $3 trillion in November 2021, by March 2022 it had fallen to $1.7 trillion, but by April it was climbing back up to nearly $2.2 trillion.
Instead, in May it plunged to 1.2 trillion, and in June it even fell to just over 800 million. The lowest peak of the bear-market was in November 2022 below 780 million.
Since then it has risen again, first above 1 trillion at the end of January 2023, and then also above 1.2 trillion.
Thus 2022 was a year of almost continuous descent, despite the ups and downs, while 2023 was a year of partial recovery.
The evolution of crypto scams over time
However, something slightly different has happened to crypto scams
Clearly there was a peak in 2021, but throughout the first part of 2022 they still continued to haunt the industry on the wave of previous success.
However, with the arrival of the real bear-market, the harsher one, many retailers moved away from the crypto markets, driving away much of the user base that scammers tap into.
The graph published by Chainalysis clearly shows how throughout the course of 2021 there has been a continued influx of capital into illicit crypto services. It also shows how they continued throughout the first half of 2022 as well.
There was an initial slowdown just as the hardest phase of the bear-market began in late May 2022, but by September such inflows were back to being substantial.
Instead, in late 2022, after the FTX fiasco that caused many retail investors to run away from the crypto markets, inflows began to slow down a great deal, and during 2023 that slowdown accelerated, especially starting in March.
Specifically, through the end of June this year, cryptocurrency inflows to known illicit entities are down 65% from the same period last year. Inflows to risky entities also appear to be down 42%.
In fact, transaction volumes are down across the board, but these declines are much less pronounced for legitimate services (down 28%).
Chainalysis comments by saying:
“there’s been a market pullback, but illicit crypto transaction volume is falling much more than legitimate crypto transaction volume.”
The scams that are suffering the most
Given the flight of many retailers from the crypto sector, those suffering the most are the real scams, which are those that involve convincing the unfortunate to send money to scammers with cleverly packaged lies.
Through June, crypto scammers have grossed nearly $3.3 billion less than in the same period 2022, totaling just over $1.0 billion a year.
Hacks are also down sharply, perhaps due to the loss in value of many cryptocurrencies.
Instead, volumes related to ransomware attacks are still on the rise, with $175.8 million more than in the same period in 2022.
If a reduction in capital inflows to crypto scams in 2022 was more than expected, especially since the harshest phase of the bear-market began, Chainalysis points out that instead for 2023 it was not expected at all, since prices are on average rising sharply.
According to their analysis, it is generally the increase in market exuberance and FOMO that make victims more susceptible to hustlers’ proposals.
In the first six months of 2023 there was no real FOMO, and the exuberance of crypto markets was actually quite subdued.
In particular, they point out that the decline in scam revenue is largely due to the sudden disappearance of two individual large-scale scams, VidiLook and Chia Tai Tianqing Pharmaceutical Financial Management.
However, this suggests that, in the event that there are no other disappearances of this magnitude among crypto scams, the decline in the first half of 2023 may be set to subside or even stop by year-end.