Prices spike in unregulated market; Cyber criminals boost ‘alt-coins’
Sky-high valuations for bitcoin have helped the value of crypto currencies burst through $50bn, raising fears of an asset bubble in the unregulated market.
A growing number of alternative digital currencies - “alt-coins” - are feeding the speculative frenzy with values in some rocketing as much as 500 per cent in the past week. A sharp spike in the price of bitcoin, which has risen 55 per cent this month and is worth more than gold, pushed it past $1,900 on the Bitfinex exchange on Friday.
The speculation has benefited anonymous payment systems being used by cyber criminals executing large-scale attacks such as the “ ransomware” hack that spread across the world on Friday.
Aside from bitcoin, there are more than 830 alt-coins ranging from Litecoin, a bitcoin challenger, to MiketheMug, which promises to make weekly payouts to holders.
An increase in initial coin offerings - unregulated issuances of crypto coins where investors can raise money in bitcoin or other more established crypto currencies - is fuelling the market and drawing attention from lawyers and financial professionals.
Many fear ICOs, which seek to market themselves as an alternative to venture capitalists as a way of raising cash for businesses, breach securities laws.
“An ICO issues crypto tokens rather than stocks and bonds, but that’s irrelevant to the substance of the activity, which is raising capital from the general public,” said Ajit Tripathi, a director in fintech at PwC. “Capital raising activities need to be regulated to protect investors. The question is: how sophisticated are these investors?”
Regulators, who often are still catching up with bitcoin, are only just becoming aware of this spin-off sector.
Japan moved to tighten regulation of bitcoin trading and dealing last month. The move forced bitcoin exchanges to comply with know-your-customer and anti-money laundering regulations, adding costs to their business.
Observers say many individuals are trading alt-coins on their own account from corporate IT departments under the radar of senior executives. Many are sitting on virtual fortunes, but are unable to liquidate their cash as banks clamp down on measures to avoid money laundering.
“Systems are being used by employees to increase their own individual wealth. In the process, corporate systems are coming into contact with the fringes of the criminal world,” said Brian Lord, former deputy director for intelligence and cyber operations at GCHQ, the UK electronic surveillance agency.
Now head of cyber practice at security group PGI, he added that it was likely very few companies had governance in place regarding crypto currency being traded on their systems.
ICOs are also attracting venture capitalists such as early bitcoin supporter Tim Draper, who plans to invest in the launch of Tezos this month.
‘Corporate systems are coming into contact with the fringes of the criminal world’