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What a crypto exit scam is — and how to avoid it

By Connor Freitas

For every irresistible chance to get on the ground floor of a startup, there’s a crypto exit scam just waiting to trip up an investor

The cryptocurrency world is a new and exciting place full of opportunities. But for every irresistible chance to get on the ground floor of a startup that could change the world, there’s a crypto exit scam just waiting to trip up a vulnerable investor.

According to a report by back in 2018, an estimated $9 million a day was being lost to scams in the crypto world — a figure that will almost certainly rise as awareness about the industry increases and more investors enter the market. But what is an exit scam, and are there any warning signs that could suggest something is amiss? In this article, we’ll explore some of the common traits of exit scams — and highlight the due diligence checks that everyone should complete before placing their hard-earned cash in a new venture.

The tell-tale signs of a crypto exit scam

Here’s a cut-out-and-keep guide that shows the hallmarks of exit scams:

  • Big claims. If you encountered an advert online that claimed you could earn $3,647 an hour working from home, you’d be skeptical. It’s worth embracing this cynicism and applying it to the crypto world, too. Exit scams will often feature promises of extravagant profit levels very early after launch — claims that are often too good to be true. Make sure you drill into the numbers, and don’t be fooled by complicated language. Although ultra-complicated terms may seem impressive at first, such jargon is often relied upon to pull the wool over people’s eyes.
  • Unprofessional documents. Just like you would be wary of an email that’s littered with typos, it’s worth giving websites that are full of inaccuracies and basic mistakes a wide berth. Sure, there are cases when foreign crypto startups are attempting to appeal to an English-speaking audience, but such sloppiness should cause concerns about their attention to detail. If they can’t get their own website right, can you trust them to make the right business decisions with your capital? The same extends to white papers. It’s worth reading these cover to cover. A crypto exit scam will usually be extremely vague on details — and will often have no tangible product. Another common trick involves copying and pasting information from legitimate companies who have done the legwork to offer a real, compelling product to investors.
  • A lack of contact information. When the first boom of initial coin offerings was in full force all the way back in 2017, even mentioning the word “crypto” was a golden ticket to millions of dollars. There were countless startups that made big promises without shedding any light on the team who were spearheading the project. Before contributing to a crowdfunding initiative, check to see whether there are detailed profiles of key executives on the website, Google their background, and check their social media profiles. That said, it is worth remembering that some shady individuals will buy followers or likes on platforms such as Facebook or Instagram, so take these numbers with a very generous pinch of salt. A strong track record is gold dust — so entrepreneurs who have proven skills in launching successful companies will carry infinitely far more authority than a self-styled “businessman” with a thin resume.
  • Keep an eye on their development. So here’s a question: what if you have already invested in a crypto exit scam without knowing it? At least for a short time after a fundraising drive has been completed, many fraudulent startups will at least try to keep up the pretense that progress is being made. Warning lights should start flashing whenever regular updates from the company start to fade away, leaving investors in the lurch.
  • Withdrawal complications. People often end up investing in a crypto exit scam long after the ICO phase has concluded. If you’re considering buying a token or a coin, check to see whether any users have complained about having difficulties when they are trying to take funds out of their wallets. Such delays are often a precursor to something being amiss.

Examples of previous exit scams

Exit scams have hit the headlines several times in the crypto world recently. Unfortunately, such reports can be difficult to find in the mainstream media — not least because many outlets seem fixated on simply reporting the ups and downs of major cryptocurrencies such as Bitcoin. This can leave everyday investors vulnerable because they haven’t been exposed to reports about the risks associated with this industry.

When it comes to the biggest crypto exit scam ever seen, PlusToken is likely to feature high on the list. In hindsight — especially if you’ve just read the warning signs we’ve set out in detail — many of the clues were there. The company had claimed that it had four million users without foundation, and big promises were made to initial investors. It now appears that PlusToken was actually a Ponzi scheme. A 10-layer marketing plan primarily involved financial contributors recruiting others, and it has been estimated that more than $2.9 billion in deposits were accrued. Alas, such schemes tend to run out of steam when the pool of willing participants dries up.

BitConnect was another prime example. Here, the returns offered to investors depended on the initial sum they contributed to the project — and backers were promised unsustainable returns of 40% per month. The biggest red flag was the vow that contributors would receive 1% compound interest on a daily basis. Doing the math would have told investors that a deposit of $1,000 would have realized impossible returns of $50 million just five years later.

In the world of cryptocurrency, volatility and bravado is everywhere — along with success stories of people making millions. Yes, there are some compelling use cases and potentially some money to be made, but it takes common sense and hard work to separate authentic opportunities from awful ones.

Like to share your thoughts and ideas about crypto and trading? You could join us as an external author. Email us on [email protected] to find out how you could become a contributor.
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