How the PlusToken Ponzi Fueled Bitcoin’s Worst Sell-Off
In this article we identify another culprit in the crypto market’s frenzied sell-off; one not well-explored by most of crypto media and which may still remain a sinister threat.
Bitcoin Suffers Biggest 1 Day Drop in History, Fueled by PlusToken Sell-Off
The prolonged crypto sell-off suddenly worsened on Thursday, with the price of Bitcoin slumping all the way down to about $3,850 a coin. Even with a sharp bounce up afterward, BTC was still left struggling, currently consolidating between the $5,200 and $5,500 range. Wall Street’s plunge also worsened on Thursday, with the Dow Jones perking back up on Friday, ending the day with a 9% gain and with levels almost all the way back up to where they were at Wednesday’s close.
All in all, the cryptocurrency market shed about $100 billion, or 40% of its value, over the course of the last 7 days, making it one of the worst weeks crypto has seen in years. As of Sunday morning EST, the top 10 coins by market cap had posted the following losses:
- Bitcoin (BTC): -39.7%
- Ethereum (ETH): -46.3%
- Ripple (XRP): 34.9%
- Bitcoin Cash (BCH): -47.2%
- Litecoin (LTC): -40.1%
- Bitcoin SV (BSV): -48.4%
- EOS (EOS): -44.2%
- Binance Coin (BNB): -46.5%
- Tezos (XTZ): -44.9%
- Unus Sed Leo (LEO): -2.9%
The reason why the last coin mentioned (LEO) in this list fared surprisingly well is because it is the utility token for the Bitfinex exchange. Bitfinex has processed a massive amount of trading volume over the last week, and as its parent company, iFinex, buys back tokens from the exchange in proportion to their hourly consolidated gross revenues, which have been very heavy. This has helped keep the LEO token relatively stable in face of immense downward pressure across the rest of the crypto market.
Outside of stablecoins, most other coins fared worse than BTC, with some of the biggest losers in the top 100 by market cap being:
- Maker (MKR): -60.9%
- Matic (MATIC): -60.5%
- VeChain (VET): -54.9%
- systems (VSYS): -53.6%
Meanwhile, trading volume across crypto exchanges as a whole was at its highest levels ever, suggesting that not only was a large amount of selling happening, but accumulation as well. Several traders and investors, however, were not so lucky to be able to buy back at lower prices. As cataloged by Bitcoin Meme Hub on Twitter, many long-time crypto enthusiasts were forced out of their positions by being margin called out of their highly leveraged positions, or simply because they had enough and decided it was time to throw in the towel:
RIP Weak Hands, you won't be missed pic.twitter.com/bKHLZf8sdk
— Bitcoin Meme Hub 🔞 (@BitcoinMemeHub) March 13, 2020
What caused all of the panic? As is often the case, there isn’t a single event, but rather a collection of events that snowballed into the situation we have now. Arguably, it all began with the introduction of the coronavirus, which eventually triggered a stock market sell-off, soon followed by a crypto market sell-off. However, the situation is likely to be more complex than that, also involving a continued sell-off of stolen BTC by a China-based Ponzi scheme called PlusToken. Though the scheme collapsed in July 2019, crypto funds collected by the scam didn’t start making their way onto exchanges until September, which coincided with a dip in the price of BTC from just above $10k to $8k, according to a blog post by blockchain analytics company Chainalysis.
When prices dipped again in mid November, it was also presumed to be due to another mass cashout of BTC by those in control of PlusToken-related funds, and while over a hundred million dollars worth of funds have been cashed out, it is suspected that they still may have tens of thousands of BTC that are waiting to be dumped on the market.
What was PlusToken?
PlusToken gained popularity as a high yield investment program throughout 2018, peaking in membership shortly before the arrest of its team members in June 2019. It operated mainly in China, South Korea, and Japan — places without much knowledge of the Bitconnect scam that came to a halt around the same time PlusToken was just getting started. Because of the language barrier and lack of availability to western countries, it went relatively unnoticed among the English-speaking cryptocurrency crowd.
The scam managed to draw in somewhere between 2.4 to 3 million users, reaching a peak trove of about 200,000 BTC held by its servers, which was approximately 1% of the total supply of bitcoin. This draw-dropping collection rendered it the biggest Ponzi scheme in all of crypto, surpassing even the likes of Bitconnect. During the height of its operations, PlusToken had all the signs of a Ponzi scam, to which profit-hungry investors managed to turn a blind eye. These included the promise of double-digit monthly returns, aggressive marketing tactics, and a generous referral program.
In February 2018, PlusToken released their white paper along with a private offering which claimed to raise 150,000 ETH. The PlusToken platform was touted as containing a number of standard features, some of which were real, and some which were not. Among them included:
- a decentralized multi-coin wallet,
- smart contract building and functionality,
- a currency and asset exchange,
- an attractive referral program, and
- access to a special trading bot that yielded massive returns.
It was this last item that was what made PlusToken particularly attractive to novice investors, enticed by promises of massive, easy payouts. The PlusToken white paper described the trading bot as follows (grammatical errors included):
“Plus token’s additional artificial intelligence robot, AI-Dog, which was developed by Samsung’s technical team. It is used to track and capture big data and efficient market analysis of major trading platforms in real time and carry out intelligent arbitrage trading in real time. Users can view real-time trading flow online…
The robot will identify the price difference and trading volume of digital assets on various trading platforms, decide whether to carry out the arbitrage task, and initiate the arbitrage trade on its own at the right time…
The PlusToken system allocates 50% of the user’s entrusted digital assets to PlusToken users and all plus token promoters through the ‘smart dog’ arbitrage trading profit.”
Of course, similar to Bitconnect, there was no super sophisticated trading bot to be found, and all trading data was faked by the PlusToken team. As any Ponzi scheme would operate, PlusToken simply used funds deposited by new users to pay its older ones. Payment was promised in the form of their own Ethereum-based cryptocurrency of the same name (PLUS), which was listed on a few major exchanges in Asia, including Huobi and Bithumb, reaching a market cap valuation of a staggering $17 billion at its height. Unsurprisingly, the price of PLUS soon dropped to zero upon news that several of its core team members had been arrested, meaning all its holders were stuck with a worthless coin and out their real currency.
Why Is this Such a Problem?
Because the hoard of BTC collected by PlusToken is basically all stolen, whoever is in control of it does not really care about timing its sale to maximize profits, but rather getting rid of it as soon as possible (while avoiding getting caught). While the crypto market bottom appears to be in, with the price of BTC bouncing off $3,800 and straight through the $4ks into its current low $5ks, it’s a good idea not to get overly optimistic in hopes of a speedy recovery of the crypto market. Not only do coronavirus-induced stock market woes remain a problem into the foreseeable future, but there is still about 20,000 to 30,000 PlusToken-related BTC that has yet to make its way to the cryptocurrency exchanges.
Even though 20,000 BTC may not seem like a big enough amount to really shake the markets, it is best to keep in mind that this BTC isn’t being traded rationally like every other bitcoin on the market. It is being sold at any price, as soon as it hits the exchange. This poses an immense downward pressure on the price in a cycle that can be described as follows:
- PlusToken BTC get dumped en masse on the market and sold, immediately dropping the price.
- A substantial downward movement causes the liquidation of several leveraged positions, lowering the price even more.
- Institutional investors (Wall Street, hedge funds, Bakkt, etc.) witness their profits being narrowed and sell their coins, along with the de-leveraging of their own positions.
- Average bitcoin investors panic and sell their coins, dropping the price even more.
- More positions are liquidated as the price continues to fall, dropping the price yet again.
- Cautiously, buyers re-emerge, thinking the market has hit a bottom.
- The price rises ever so slowly.
- More PlusToken BTC hits the exchanges, and the cycle is repeated until all BTC has finally been dumped.
In short, cryptocurrency prices may now seem like they have finally bottomed, given the intense bloodbath of the last seven days, however this may not actually be the case. Nobody wants to see the crypto market go any lower, but until both stock markets settle and PlusToken has finished dumping their ill-gotten coins, the market just may go lower yet.