The Crypto Crash - What next?

Since the crypto market stormed across the financial landscape it has been almost invariably floated as a good investment and for some it proved to be so. As confidence grew in the new concept of virtual currency, new entries to the market grew and by bringing faster money transfers and a raft of other benefits, cryptocurrencies rode an ever-rising wave.

Slight warning bells were heard concerning the market’s volatility and the fact that fraudsters and money launders had warmly embraced this new vehicle for their nefarious activities and also novice investors were being scammed as they flocked to access the latest “make a fortune quick” scheme. The global challenges experienced over the past two years seemed to accelerate the need to invest in systems that delivered well. Functioning outside the existing underlying foundation for the financial sector and without backing from public organisations cryptocurrencies are largely unregulated. Since January 2020 the Financial Conduct Authority (FCA) has overseen the registration of firms dealing with crypto assets in compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The FCA warns on its website that crypto assets are extremely high-risk investments and individuals investing in crypto assets are unlikely to have access to the Financial Ombudsman or the Financial Services Compensation Scheme in the event of something going wrong.

Joanna Bailey, a partner commented “The latest and most disastrous turn of events in the crypto market appears to have fulfilled the doomsayers' predictions. However, if and it is by no means guaranteed when, the market begins to rise investors must recognise that extreme caution must be practised in this explosive and unpredictable market. Its very structure suggests that the lack of substance might prove to be its undoing.”

Giambrone & Partners dedicated cryptocurrency team point out that this latest crash has highlighted the fact that so many investors were lulled into a false sense of security and blinded into investing their entire savings in a market with little or no regulatory security for investors. The price fall of 94 in a period of 24 hours will slow down or even halt the global acceptance of cryptocurrencies.

HM Treasury report if adopted may go some way to shore up the crypto sector's reputation and ensure that when the recovery begins investors have at least some point of reference. The government recognises the benefits in efficiency and also notes that owners of cryptocurrencies buy goods and services; it seeks to find a way to bring crypto into the regulatory fold and protect consumers from the catastrophic consequences of an abrupt overnight drop in value. This may lead to a fundamental change in scale and in the environment, impacting across all markets.

Joanna Bailey heads our banking and financial fraud litigation department.

Joanna frequently leads the litigation against financial institutions involved in cryptocurrency trading disputes, as well as Forex investment issues and regulatory investigations and has some considerable success in retrieving our clients' funds lost in fraud.

She has developed a range of strategies both to find the assets of the individuals perpetrating the fraudulent schemes and restore the funds to our clients. As well as recognising culpability in the organisations facilitating (but not associated with the fraud), by failing to undertake adequate due diligence.

Joanna led the first case in Europe where proceedings were served on Persons Unknown connected with two digital wallets over the blockchain by non-fungible token or ‘NFT’ in a cryptocurrency fraud. Following this ground-breaking case Joanna was named as Lawyer of the Week in the Financial Times.

Joanna is highly experienced in high-value out-of-court settlement negotiations and has in-depth knowledge of the Civil Procedure Rules as well as English common law.

Giambrone & Partners banking and financial fraud team can provide a comprehensive legal and regulatory service, including criminal investigations for both organisations and individuals. Our lawyers have developed strategies to assist in recovering lost assets across the market.

If you would like to know more about cryptocurrencies please contact Demetri’s clerk Sam Groom SG@giambronelaw.com or please click here