Skeleton typing at a keyboard for crypto halloween.

Happy Halloween: Here Are the Scariest Crypto Casualties of 2022

Disclaimer This article is for general information purposes only and isn’t intended to be financial product advice. You should always obtain your own independent advice before making any financial decisions. The Chainsaw and its contributors aren’t liable for any decisions based on this content.

While crypto’s reputation has arguably improved over the course of this year, thanks in large part to regulatory oversight and improved tools to catch thievy scumbags, there’s no better time than Halloween to reflect on some of the most brutally spooky stories from the past year. 

And what better way to commemorate the spooky season than by revisiting the top five most hair-raising, chill-inducing crypto misadventures in 2022? Our countdown begins …

5. The Squid Game Rug Pull

Let’s kick things off with a classic tale of bull market mania that saw scammers make off with US$3.3 million. While Netflix’s hyper-violent, life or death series Squid Game enjoyed international acclaim, the same couldn’t be said for one of crypto’s most short-lived scam tokens: SQUID.

SQUID’s whitepaper claimed that the token would be used to compete in Squid Game-inspired “Play to Earn” minigames — much like the ones from the show — where players would potentially walk away with massive rewards. Unfortunately for SQUID holders, none of this was ever true, and after the value of the project soared by roughly 23,000,000% the team behind the project disappeared, sending the price of the token to near-zero. 

Screenshot: SQUID

To make matters worse, early investors in the SQUID project immediately noticed that they couldn’t sell their tokens, as the developers had purposefully blocked any ability to sell or transfer the token in the code itself. 

It’s worth noting that nearly everything about SQUID reeked of a scam, but that didn’t stop major news outlets like BBC, Business Insider, Forbes, Fortune and CNBC from running articles that touted the following headlines:

  • “A Crypto Token Based On ‘Squid Game’ Is Surging”
  • “There’s now a ‘Squid Game’ cryptocurrency — and it’s jumped more than 75,000% in under a week”
  • “Squid Game’ crypto is up more than 86,000% in a week”

SQUID serves as a relevant reminder to do your due diligence before ‘apeing into’ a project — crypto parlance for going ‘all in’. If the whitepaper is riddled with spelling mistakes and the project’s Telegram chat doesn’t allow for messaging, you’re probably dealing with a scam. 

4. Kim K’s EthereumMax pump and dump

Next on the list is a poignant example of why you should probably never trust celebrities to give you quality investment advice. In June last year a strange post appeared on Kim Kardashian’s Instagram story asking her 300 million followers: “are you guys into crypto?”

She followed this up by saying that her ‘friends’ had just told her about a token called EthereumMax (EMAX) with the hashtags #ad and #disrupthistory.

Kim Kardashian’s Instagram story, screenshot.

Off the back of this post, the price of EMAX went ham, surging by a little more than 800% in the following days. Quite predictably, the token did what all “pump and dump” schemes end up doing — it plummeted a touch over 98%.

Despite Kardashain claiming that she disclosed it was an advertisement, she was still slapped with US$1.26 million fine by the Securities and Exchange Commission (SEC). According to SEC chair Gary Gensler she failed to report that she was paid US$250,000 by EthereumMax. The reason that she needed to include how much she was paid is because — according to the Gensler — Kardashian was actually promoting a “security”.

Importantly, the EthereumMax token has literally no relation to Ethereum (ETH) whatsoever. The creators of EMAX simply used a bigger name to mooch credibility and brand recognition at a quick glance, an all too common tactic used by predatory actors in the branding world.

3. Celsius went completely bust

A list of the most horrific losses wouldn’t be complete without the absolute insanity that followed in the fallout from the now-defunct crypto lending platform Celsius. 

At its height, Celsius had a whopping US$12 billion in assets under management and nearly 2 million daily active users on its platform. This all changed when the sudden implosion of Do Kwon’s Terra money ecosystem — which we’ll get to later — caused a cascade of liquidity issues for major companies that were what you could call “overexposed” to the Terra project. 

What made this story painfully ironic was that the platform’s CEO Alex Machinsky built his reputation on criticising banks for being unstable, marketing Celsius as “the safest place” for people sceptical of traditional banking to store their funds. After Celsius began halting proposals in June, it then filed for Chapter 11 bankruptcy in July. 

Things only got worse for Machinsky as the firm limped through its bankruptcy proceedings, where it was revealed that Celsius was US$5 billion in debt and simply couldn’t account for nearly US$1.2 billion in funds. It was then brought to light that Machinsky withdrew roughly US$10 million from the Celsius platform a few weeks before the platform began freezing customer funds and eventually declaring bankruptcy. 

Despite a spokesperson claiming the withdrawal was to “pay taxes”, it raised a lot of suspicion concerning Machinsky’s knowledge of the platform’s financial health in the weeks leading to it going belly up.

Making matters much, much worse, on October 7, Gizmodo leaked a 14,000 page document published by Celsius that included every user’s full name linked to exact time stamps of on-chain transaction data, causing an enormous outcry over the nature of data on centralised exchanges.

2. The Mango Markets Hack

Next up is the already infamous Mango Markets attack. This exploit gained notoriety for being as immoral as it was ingenious. Here’s how it went down. 

On October 11, the developers of the Solana-based Decentralised Finance (DeFi) platform Mango Markets began to notice some strange happenings in their collateral pools (a place where funds that back loans are stored). Mere minutes later, a hacker had drained the platform’s treasury wallet for a total of US$114 million.

A few hours after the exploit sent shockwaves through the crypto ecosystem, the attacker then submitted a governance proposal to the Mango DAO which claimed that if it was approved, they would return US$67 million of stolen funds back to the Mango Markets treasury. 

Most bizarrely, the hacker stipulated that if the proposal went through — which it did — they would be exonerated of all criminal charges and would walk away with US$47 million as a bounty reward — the largest in crypto history.

What makes this story even more bonkers is that the hacker actually revealed his identity in the days following the exploit. The hacker, Avraham Eisenberg, came out and claimed that his actions weren’t just “legal”, they were entirely justified because the hack was actually just a “highly profitable trading strategy”. It goes without saying, but his statements were met with a wide a pretty wide range of reactions from personalities across crypto Twitter. 

Some pundits cheered Eisenberg for exposing the vulnerabilities in Mango’s protocol, while others viciously condemned him, requesting that the authorities track him down and throw him in prison. 

Eisenberg even went as far to create a memecoin called “Mango Inu” in the wake of the attack and warned investors that if they invested in it, they would “certainly lose money”. In true degenerate fashion, that didn’t stop speculators from piling in. 

Regardless of the ethics surrounding the situation, the Mango Markets debacle rapidly cemented itself as one of the most interesting events to grace the crypto space. 

1. The almighty Terra LUNA collapse

Finally, we have the ultimate crypto horror story: the brutal downfall of Do Kwon’s Terra money ecosystem which destroyed tens of billions in value almost instantly and caused a domino effect of collapses in crypto that led to firms like Three Arrows Capital (3AC), Celsius and Voyager Digital declaring bankruptcy. 

Most cryptocurrency investors never thought they’d have to ask which asset — TerraUSD (UST) or LUNA — would fall below US$1 first. UST was after all supposed to be a stablecoin.

However, in the wee hours of Wednesday May 11, this predicament became the focal point of the crypto space as the Terra ecosystem collapsed to zero, wiping nearly US$60 billion from the face of the earth.

Within the space of 24 hours, Terra’s algorithmic USD-pegged stablecoin, UST, lost its dollar peg and crashed to a new low of $0.32 while its sister token LUNA plummeted over 98% to reach $0.84. For context, a single LUNA token was changing hands for nearly US$120 just one month before the crash.

While most other USD-pegged stablecoins like Tether (USDT) and USD Coin (USDC) are backed up by reserves of physical cash — TerraUSD was an algorithmic stablecoin. This meant that when the value of TerraUSD dipped below US$1, it could be swapped for LUNA tokens at a small profit by using smart contracts. 

Unfortunately for Terra investors, a very sophisticated entity (most likely a group of traders) caused these smart contracts to stuff up, creating a death-loop where UST lost its peg so rapidly that investors rushed to sell their LUNA rather than try to stabilise the value of UST— tanking the price of both assets simultaneously.

As of today, a little more than 6 months on from the catastrophe, the original LUNA token has been renamed Luna Classic (LUNC) and Terraform Labs co-founder, Do Kwon has launched a new blockchain, called Terra 2.0, in the hope of rectifying some of the egregious errors that were uncovered in the original fallout. 

Kwon, who is now wanted by South Korean authorities and has an INTERPOL red notice to his name, has since appeared on crypto journalist Laura Shin’s Unchained Podcast where he was given an opportunity to tell ‘his side’ of the story. 

Unfortunately, his conversation with Shin did very little to clear his name, as he spent most of the 90-minute episode dodging questions and going on long-winded tangents about unrelated subjects. At one point, Laura Shin had to remind him to apologise for the effects that the collapse of the Terra money ecosystem which saw many investors lose their life savings and some even commit suicide. 

The Halloween Effect: upgrade your spooky season investments

There’s a little known superstition among traders known as “The Halloween Effect” where traders believe that risk-on assets like crypto and growth stocks perform better during the spooky season.

While some analysts may point to The Halloween Effect as an explanation for some of the recent price action in crypto, analysts from Australian exchange Swyftx aren’t so sure about the correlation between the two. 

In conversation with The Chainsaw, a market analyst from Swyftx said claimed that it would be “witchful thinking” to think that the Halloween strategy applies to crypto. 

“Swyftx saw a big increase in daily trade volumes last Halloween but that’s likely just a correlation. If you bought Bitcoin on November 1st and sold it on May 1st in each of the past seven years, you’d have made a profit four times and a loss three times,” they said. 

With that in mind, they said that the coming week is shaping up to be a significant one for crypto markets.

“The next week does have the potential to be a significant one for equities and cryptocurrency markets. You’d just be hard pressed to link it to Halloween. We’ve got big interest rate decisions over the next few days in the US and UK, as well as the release of key US employment data,” they added. 

Regardless of whether ‘line goes up’ over Halloween, it’s always important to remember that historical correlation and the superstitions of traders doesn’t guarantee returns. Always do your own research, consult a financial adviser and do your best not to be a part of one of the things that could get featured in next year’s Halloween list. 

Make sure to have a fang-tastic Halloween from the crew here at The Chainsaw.