Cryptotrading Scams

Recently on Cointelegraph I run across an article FBI arrests 24-years-old crypto-trader for fraud.

Jeremy Spence, a/k/a, ‘Coin Signals,’ allegedly lured investors to his cryptocurrency investment scam by touting returns of up to 148%. Spence’s investments not only failed to reach his audacious claims, they consistently lost money, leaving a $5 million void in his clients’ crypto accounts.

Well, nothing new, shit does happen. The only funny thing is that the shit actually happened during the previous bull run, in 2017-2019. I wonder how many of those unfortunate "investors" participated in the latest pump.

There's a lot of different scam schemes in crypto. Rugpulls, shitcoin shilling, "send one ETH and get two back", "this faucet doesn't pay!!1", and so on. Today I'd want to mention what I call trading scams.

It's indeed possible to have profit from trusting your money to a trader or to an "unofficial investment fund" or to use so-called "signals". But it's kinda hard not to run into a scam along the way. Besides, in crypto you have pretty much no protection, FBI will hardly go for every crypto scammer, especially for those who're anonymous and live on the other side of the globe.

I would loosely divide trading scams into two groups: "ponzies" and "losers". Ponzi is self-evident: you create hype, raise money, and pay old suckers with the money you get from new suckers. You don't even need to trade along the way. A "loser" raises money and actually tries to trade or invest, but his results are far from perfect, and in the long run his fund gradually melts down.

Both schemes live on hype (or "marketing", if you will). It can be a blatant lie when they make purely false claims out of the blue or it can be "half-truth", "half-backed claims", so to say. For example, a trader publicly shares his trades (tickers, buy and sell prices, etc.), but when you scrutinize it, you see that he shares them late, that is, he "trades" on the left side of a chart (if he trades them at all). Another example is when a trader keeps pushing his winning trades forward and quietly forgets about the losing trades (meanwhile his actual losses are greater than profits). All this marketing bullshit requires a good amount of DYOR drilling, months or even years back, to find the truth.

"But why a trader is required to share his trades at all?", you might ask. Well, he's not required, of course. And even less he's required to share all his trades in "real time". But how else can he prove that he is "legit", that he does deliver the results he claims? Would you send your money to someone you don't know, without any proof? Provided that there's no SEC, no FDIC, and even FBI can fail to punish your abuser?

Personally, I know the only one more or less sure way to check a trader's performance: it's when the trader gives you access to his trading account to see his real track record. However, it's not always possible technically, and even less it's accepted by traders (especially by crypto-traders). Why would they, actually? With proper "marketing" they will have enough "investors" and much fewer troubles.

Copytrading and "restricted withdrawals" were supposed to mitigate some of the issues, but these things are not widespread, they are rather difficult technically and still have their own caveats.

In the end, I would only note that a good trader has little incentive to scam his clients: the more permanent clients he has, the more profits he will earn in the long run with other people's money. However, it's kinda hard to be a good trader. And it's indeed good to put your money with a trustworthy person who can constantly deliver better results than you would expect from yourself. But as of today's crypto, it seems rather impossible for casual folks to find such a person without learning the field so deep as to become such a person...

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