If you are planning on investing in cryptocurrency, then read this cryptocurrency scam warning first!
Learn what is a cryptocurrency scam before you spend your money.
First of all, I have taken the plunge into cryptocurrency, buying both Bitcoin and Ethereum. I bought $30 of Bitcoins and $10 of Ethereum earlier in the year. Not large dollar amounts by any definition.
I could say the reason I bought some cryptocurrency was to balance my investments based on Modern Portfolio Theory. (I have an MBA in finance.)
Many financial advisers and experts recommend diversified investment portfolios to maximize returns based on an investor’s risk tolerance. Some advisers recommend small riskier investments in precious metals, for example.
I bought some out of curiosity and chance that cryptocurrency may actually turn out to be good investment.
Would I do it again?
A qualified YES!
I will tell you why shortly.
What is a cryptocurrency scam
A cryptocurrency scam is any scheme or activity that deceives, tricks, cheats you out of your money in exchange for the promise of financial gains with cryptocurrency.
Typical cryptocurrency scams include:
- Pyramid schemes
- Pump and Dump
- Initial Coin Offerings
- Fake cryptocurrency coins
- Dishonest exchanges
Cryptocurrency pyramid scheme
Pyramid schemes, including Ponzi schemes, are increasing rapidly online, particularly in the make money online niche. Business opportunity promoters are recruiting members to join networks. New members are required to pay membership fees to invest in cryptocurrency. Also, members are incentivized financially to grow the network instead of making sales.
Early in 2017, OneCoin representatives were arrested, convicted, and sent to jail for running a cryptocurrency Ponzi scheme. They had grabbed $350 million from investors.
Pump and dump
Jordan Belfort, “the Wolf of Wall Street”, was convicted and jailed for running a securities pump and dump operation. The same sort of thing is going on with cryptocurrency. The Business Insider reports pumping and dumping is widespread within cryptocurrency exchanges.
As the Wolf did, cryptocurrency traders are buying cryptocurrency at low prices and then artificially manipulating the prices and promoting them to unsuspecting investors.
Initial Coin Offerings
Initial Coin Offerings (ICO) are the cryptocurrency market equivalent to the stock market Initial Public Offering (IPO) of stock.
An ICO is a way to raise funds by issuing a new digital coin (cryptocurrency). The new digital coin is exchanged for either cash, bitcoin, or other digital coin. Even Paris Hilton and
Belfort himself, who served 22 months in prison for securities fraud and money laundering in 2000, said that ICOs were
Fake cryptocurrency coins
If you have spent any time in the make money online niche or been looking for ways to make money online, then you may have seen social media ads or email ads promoting bitcoin, ICO, or cryptocurrency coin opportunities.
Scammers and unethical marketers are taking advantage of people by promoting fake coins or opportunities. The Swiss authorities recently closed down a fake coin operation and are investigating other possible fraud schemes.
Dishonest cryptocurrency exchanges
First of all, a cryptocurrency exchange is a digital marketplace where people can buy and sell cryptocurrency using different fiat currencies or altcoins.
Since the cryptocurrency market is so unregulated, it is difficult to determine the trust worthiness of any cryptocurrency exchange, particularly new ones. Mt. Gox was one of the largest cryptocurrency exchanges until they stopped trading coins in 2014. They lost 850,000 bitcoins over a period of time to thieves.
If you are looking for information about exchanges, then this guide may be of help to you.
Here is a very short list of cryptocurrency exchanges (the ones I have seen) that I would consider using:
- Coinbase – I use this one only.
Here is why I may not invest more in cryptocurrency
1. Scams – There is not a way to evaluate offers being made. So many programs are overly hyped offering promises of riches without effort. Programs focus on recruiting new members instead of the sale of product or bitcoins.
2. Bubble – The cryptocurrency market is acting as if the pricing bubble is about to pop. Trading volatility and froth reflect pricing uncertainty and high risk due to speculative pricing. The cryptocurrency charts reflect the speculative nature of cryptocurrency pricing. The fact that celebrities are creating their own coins are fueling the frenzy.
3. Liquidity – It may be easy to buy cryptocurrency. Selling it not so much. Transaction fees per trade have tripled recently. And may go up again. Also, given the hug surge in trading volume, the cryptocurrency market infrastructure cannot keep up with demand. Coinbase acknowledged their computer systems were overwhelmed and need of update to handle the volume. Furthermore, the Electroneum mobile application shut down for a system update to improve security. This left its members without access to their cryptocurrency for a few weeks.
However, the U.S. based Chicago Mercantile Exchange is planning on launching bitcoin futures for trading on the CME. Bitcoin futures enable investors buy into the digital currency market without directly investing in the cryptocurrency.
If you must invest in cryptocurrencies…
Follow these cryptocurrency investment tips:
- Invest in amounts you can afford to lose in it’s entirety.
- Do your due diligence, homework.
- Manage your expectations. Expect to lose it all.
- Stay with the major exchanges and cryptocurrency.
- Expect price volatility. The charts already show that. Price direction is not one way.
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