ICO OR TOKEN FRAUDS

The Cryptocurrency world has historically been plagued with individuals seeking quick profits at the expense of others. Most of these have resulted in fraud through ponzi schemes, security negligence, and most recently fake ICO’s.

The two largest scams to watch out for:

Exchanges: Watch out for immature exchanges with a lack of transparency, advanced security features and regulatory standards set in place. Most exchanges in the last few years have come a long way to seek out regulatory compliance with governments and installed industry grade security features.

ICOs: This new source of funding is currently in the regulatory grey and as such is susceptible to many fraudulent companies. The past few months have seen some standard best practices emerge in the industry. DO NOT invest in a company with an informal or weakly structured white paper. Do your research and make sure the transparency of the team and their build is a top priority and there are real people backing the company.

Proper education is the solution. Many fake currencies will not be backed with sound mathematical principles promising unrealistic returns on investment that only come from new investor’s money.

According to InvestopediaPump and dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company’s stock, sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.

Unlike stocks, cryptocurrency market is barely regulated and, as a result, Pump and Dump happens on a daily basis.

So how does it work?

Scammers would usually pick altcoin with small trading volume: less than or ~1 BTC. This gives them supreme control over the trading process. Once token is picked, scammers proceed to the next step: “purchasing period”.

During purchasing period, scammers would carefully acquire tokens to avoid sudden price spikes. It’s very important for them to keep the price steady to minimize their potential losses.

Purchasing period

Once scammers are done with token acquisition, they set sell orders, that look like a ladder. This ensures that price will gradually grow even after couple, low-volume purchases.

Orders are set and ready

When everything is set, scammers proceed to the hype stage. In order to sell tokens that have low-volume and no demand, they use Telegram channels. Current trend shows that scammers prefer using automated software which invites people in fraudulent Telegram groups.

Some people join these groups voluntarily, but majority of people are getting invited. To attract new victims, scammers use couple tricks:

a) Sense of urgency is created to involve more people. Avoid anything that has excessive use of words like “limited offer”, “special offer”, “VIP signal”, “Valid only for X hours”

b) Orders are set in specific way, so that even small purchases create illusion of sudden price surge. People got stricken by FOMO (Fear of missing out) when they see that “signal is working”. Driven by greed, traders rush to buy more, pushing the price even higher.

Once these PnD telegam groups reach 10-20 thousand subscribers threshold, scammers start sending signals.

Driven by greed and fear of missing out, traders start buying tokens from scammers which they accumulated during “purchasing period”. When there are enough buy orders in the order book, scammers immediately dump all their tokens.

This is typical example of PnD signal and its consequences

Signal was given at 2 PM, and price spike was registered at 2 PM accordingly. Price surged from $0.02 cents to $0.10, and then plummeted to $0.03 cents, leaving traders with bags and no money. Unfortunately, Pump and Dumps occur quite often, indicating immaturity of the market, and lack of general public knowledge about fraudulent schemes.

This is quite common and popular market manipulation which wiped millions out of people’s pockets. Always stay alert and take precautions to avoid fraud.