By Frances Yue
Bitcoin cash jumped about 5% to $632 Friday after a fake news release said Kroger will accept bitcoin cash in its stores.
The report appeared on PR Newswire, a site where many companies publish official statements, and was automatically picked up by Kroger /zigman2/quotes/206215053/composite KR -0.38% ’s investor relations page. The statement has been deleted from both sites.
After Kroger said the report was fraudulent , bitcoin cash /zigman2/quotes/108573970/realtime BCHUSD -3.80% fell back, recently trading at around $600. Bitcoin cash, which was created in 2017 as a fork of bitcoin, is the 21st largest cryptocurrency based on market capitulation, according to CoinMarketCap.
The misinformation-powered spike happened only weeks after litecoin /zigman2/quotes/108573968/realtime LTCUSD -1.86% surged 20% in September following a fake report published on GlobeNewswire that Walmart /zigman2/quotes/207374728/composite WMT -0.54% would accept the cryptocurrency as payment at its retail venues.
The two incidents shared many similarities, as both deceitfully said major retailers start accepting certain cryptocurrencies.
It’s worth noting that similar incidences haven’t been exclusive to crypto, several experts said.
“We’ve seen this throughout the entire history of finance,” Robert C. Hockett, a professor at Cornell Law School told MarketWatch in a phone interview. “What the scammers will do is they’ll buy some of this stuff before announcing the rumor. After they release the rumor, they’ll watch the price go up as people sort of react to the rumor unthinkingly, and without doing their due diligence.”
“Once the market reaches a higher level, the scammers will sell their holdings and they’ll pocket a great big profit from that,” Hockett said.
However, even though the maneuver is not new, “it’s a really easy catalyst when it comes to crypto,” David D. Tawil, president and co-founder of crypto fund ProChain Capital said.
Chen Arad, chief operating officer at crypto risk monitoring firm Solidus Labs told MarketWatch that “at the end of the day, it all stems from the fact that this is still a young asset class. And there’s a lot of excitement around it,” Arad said.
“Oftentimes FOMO (fear of missing out) and buzz in the fact that everything gets retweeted and shared by a very excited crypto community very quickly, it can be conducive to fraud and manipulation,” Arad said.
In such episodes, the scammers tend to choose cryptocurrencies that are “credible, and something that would move a lot percentage-wise,” Tawil said.
“If Kroger came out and said it’s taking bitcoin, I would think maybe bitcoin would have a 2% move, 3% move,” Tawil said. “These guys are looking for like a 30% move in five minutes before the Kroger denial comes out as to cash in at that moment. They’re trying to make really fast and big money.”
Such cases also point to the demand for more regulatory clarity and consumer protections, industry participants said.
“It seems a somewhat isolated incident,” Tawil said, referring to the fake Kroger report. “But we’ve seen it before now. And so I guess it’s becoming a pattern,” Tawil said.
“This is just another instance or another example of why it’s becoming increasingly urgent for the regulatory regime to clarify its applicability to the fintech markets,” according to Cornell’s Hockett.
“I think it’s only a matter of time — and probably not much time — before either the SEC or some other regulators are given definitive jurisdiction over the crypto markets and fintech markets, with a view to preventing these kinds of abuses. Because again, they’re quite predictable,” Hockett said.
Investors should also be more cautious in trading on the news, experts said.
“When trading any asset, the investor should have a well thought out and researched reason for taking that position,” Gavin Smith, CEO of crypto exchange Panxora wrote to MarketWatch in an email. “It’s always better to be well researched rather than to be the first one to hit the buy button.”
When it comes to cryptocurrency and decentralized finance, “it’s worth taking extra care,” said Solidus Labs’s Arad. The industry is yet to have mature risk monitoring standards, according to Arad.