Early this morning, the cryptocurrency exchange known as Poloniex was hijacked and is currently being manipulated by an unknown group. As the orchestrated digital robbery continues, Poloniex investors have lost over $150 million and growing every minute.
The heist began yesterday morning when investors noticed the interest rate for lending your BitCoin to other investors was much higher than usual. Typically you can earn around 0.003% for loaning your money to facilitate margin buying and selling. The default length of the loan is 2 days but most loans are paid back within a few hours. Enticed by the unprecedented interest rates, Poloniex investors loaned out upwards of $14 million.
$35,000 locked in for 2 days will earn $5.60 and a lost value of $1,200.
Ironically, thousands of investors just loaned the money that would enable a deceptive money scam, and at a low-interest rate by most lending standards.
The following morning as Poloniex users began checked their lending accounts, they were surprised to notice not a single loan had been paid back. Yes, it’s considered a gamble to loan money for potentially 2 days, as the crypto prices can fluctuate considerably in that time. Strangely though, as investors looked over the various coin prices, the market seemed to have flat-lined. There was very little upward or downward movement. At closer examination, it became clear what was going on.
The group had set a substantial position just above and just below the current selling price. The price blocking position on all top traded cryptocurrencies was above 900 bitcoin (BTC), roughly $12,000,000 converted to USD. The average investor’s account value is $15,000, meaning it would take 800 people to buy out this position and move the stock price higher.
This is a major flaw the Poloniex, and all other fluid market, exchanges.
Without enough buyers to buy all 921 BTC the price of that coin can’t increase. This is Even if you offer higher than the massive position set price, the system will just take the money out of whatever bid is next in line on the number scale. You could also try and sell your position, but the low end was locked in with another huge position.
7 hours and still going at the time this was written. The sale price is locked in but the value declines as Bitcoin declines.
The positions were so close together that you would lose money on the trading fees if you bought and sold at all. As unknowing investors bounced back and forth between the high and low they were just digging themselves in deeper. As people tried to buy out the top money would just come from the bottom. The positions were set at just the right positions to gain the culprit a 1% return for each buy and sell.
These massive positions are exactly 1% apart. Just enough for the scammers to cover the 0.003-5% lost in trading fees and still make a profit.
Investors who loaned their entire account balance had to sit back and watch the value decline, knowing they wouldn’t have their funds back for at least another 24 hours. The hijackers took out short-selling positions, as they had guaranteed the hostile takeover would lead to massive sell-offs.
In just under two hours the scam had already moved over $100,000,000 into the digital wallets of these colluding low lifes.
Poloniex has no phone number or mailing address listed on their website just the city of Wilmington, Deleware. I reached out via their customer support contact form to see if they were going to take any action, but I have not received a response back.
Currently, there is a sign-up form for anyone who sustained losses from this policy loophole and would like to join a class action lawsuit, forcing Poloniex to release the accounts and names of those involved to the authorities.
The founding premise of digital currency is to eliminate scams, theft, and allow for a distributed consensus on all transactions. Transparency, fairness, and a belief that the people who controlled and manipulated money would be overthrown. Now, it appears that corruption and power will merely move from one small group to another.