In June, the ringleaders of Plustoken were arrested by Chinese police, putting an end to a ponzi scheme that is estimated to have netted almost $3 billion from gullible investors. The magnitude of major scams is often exaggerated for dramatic effect, but Plustoken’s numbers appear to check out: blockchain analysis has shown that at least 187,000 BTC – or about 1% of Bitcoin’s total circulating supply – was siphoned away by Plustoken.
Armchair theorists love postulating the reasons behind bitcoin’s latest price rise or sell-off. From China FUD to exchange hacks, anything and everything is fair game for blame.
Plustoken is the latest bitcoin bear-maker that’s being credited with the last three months of downward price action. But is the revenue from a ponzi coin really responsible for bitcoin’s drop, or are there broader forces at play?
Anatomy of a Scam
The nature of Plustoken’s scam isn’t particularly interesting; get rich quick schemes are a constant menace within the cryptosphere, luring in unsophisticated investors who have little experience of cryptocurrency. Not everyone hoodwinked by the project was an easy mark, however: many supposedly shrewd investors were also snared by the promise of guaranteed returns of up to 30%. Although little known in the western cryptosphere, Plustoken was a big deal in the east, heavily promoted on Wechat and reaching a market cap of $17 billion and $340 a token.
The Plustoken story gets interesting upon its leaders’ arrest. Authorities might have detained the main culprits, but what they hadn’t seized was the bitcoins. After lying dormant for several months, the ill-gotten gains began to move through the blockchain and pretty soon were showing up on cryptocurrency exchanges.
Plustoken marketing materials
Two Pluses Make a Minus
Hackers and con artists regularly liquidate cryptocurrency on exchanges in a bid to flee to fiat or swap coins so the blockchain trail goes cold. They’re generally savvy enough to offload their hot crypto in small tranches to avoid causing slippage – for their sake, if not the market’s. With a haul of 187,000 BTC, however, the Plustoken scammers had no easy way of liquidating quickly without affecting spot prices. As a result, they stand accused of wreaking havoc twice over, following up their initial scam by triggering a sustained sell-off.
Ergo is a cryptocurrency researcher with a fascination for blockchain forensics. He’s also the leading source of knowledge on the whereabouts of the bitcoins Plustoken’s team trousered.
I’ve been seeing a lot of Twitter FUD opining on miner capitulation in the last few days.
This got me thinking… could the selling by the PlusToken scammers have had an abnormal effect on this market cycle?
– ∴ Ergo ∴ (@ErgoBTC) November 21, 2019
In October, Ergo published his analysis of the scammers’ attempts to launder their coins by moving them through Wasabi’s mixer. In total, 19,000 BTC were obfuscated in this manner, with a total of 54,000 BTC being moved through various mixers, often with poor privacy results due to the ease with which the large inputs and outputs could be linked.
On November 21, Ergo laid out his thesis that the movements of Plustoken’s bitcoins are indicative of sustained and heavy selling pressure which has coincided with the market downturn that took BTC below $6,500 for the first time since May.
Bigger Than Mt. Gox
Ergo’s research has confirmed the initial estimates of 187,000 BTC raised by Plustoken to be correct. The team also amassed $120 million in ETH, which is currently unmoved, and $69 million in EOS which is also dormant. To put Plustoken’s bitcoin haul into perspective, it is more than 40,000 BTC larger than the Mt. Gox coins that are due to be issued to creditors upon settlement of the bankruptcy case. The crypto community has been nervously awaiting the release of the Gox coins, anticipating that their unlocking will crash the market. Given these long-standing fears, it is reasonable to attribute a similar outcome from the Plustoken coins being sent to exchanges.
Cryptocurrency exchanges seem to be the final destination for the Plustoken bitcoins, with Huobi among the exchanges to receive deposits that can be traced back to the ponzi scheme. Ergo estimates that 1,300 BTC a day have been offloaded in this manner on exchanges, purely from Plustoken, adding: “To put that in perspective, that is over 60% of the daily block reward in sell pressure.”
Based on the number of remaining coins to be offloaded, it is estimated that there could be another 6-8 weeks of heavy selling. If so, it will be into the new year before the market sees relief. With another scamcoin, Cloud Token, still being shilled on Chinese social media and raising millions of dollars of bitcoin, and the $49 million of ETH hacked from Upbit this week on its way to cryptocurrency exchanges, there may be more pain to come.