Here's an extended excerpt from Ian King's article How to Beat the Crypto Scammers,
published February 1 in The Sovereign Investor Daily (a Banyan Hill publication) --
Cracking Down on Crypto Scams
It’s the 800-pound crypto gorilla in the room: crypto scams exist.
That’s the main reason Facebook just banned all crypto ads, including ones that promote bitcoin and ICOs. Truth be told, if you have to advertise your new crypto investment offering on social media, it’s probably not worth buying anyways. But I digress.
South Korea also cracked down on crypto scams recently, and the country has uncovered $600 million in crypto-related crime. Some crypto skeptics were worried South Korea would shut down trading on exchanges, but it only introduced new regulations.
And in December, the U.S. Commodity Futures Trading Commission sent subpoenas to crypto exchanges Bitfinex and Tether, the latter being a controversial project that claims to peg a cryptocurrency to the U.S. dollar.
Notably, the two projects share the same chief executive officer.
BitConnect also raised concerns. A second lawsuit was just filed against the cryptocurrency exchange after it shut down. The suits claim it’s a Ponzi scheme. Now a temporary restraining order on its assets has been granted to help plaintiffs recover their funds.
After this onslaught of news, bitcoin prices understandably retreated 12% on Thursday, falling below $9,000 for the first time since November.
But, as it always happens, it will bounce back. For those who buy during these dips, who have a plan and don’t let the scams shake your outlook of the crypto market … you’re well-positioned to profit while others miss out.
So What Exactly Is a Crypto Scam?
It’s easy to say: “Be wary of scams.” But what exactly do you look for?
Well, I can give you an example of one crypto asset that’s raising some red flags.
As I mentioned before, Tether is a “stablecoin” — a cryptocurrency intended to represent the U.S. dollar. It allows crypto traders to move in and out of virtual currency without having to cash out of the exchange and into a bank account.
For instance, an investor who owns bitcoin on the Bitfinex exchange and wants to get out can trade it for tethers. Sounds great, right?
Many people agree. Currently, there are 2.2 billion tethers in circulation.
Each tether represents $1, so there should be a reserve of $2.2 billion in a bank somewhere should holders wish to redeem their tethers for dollars.
Here’s where things get dicey…
For the past few months, there have been growing concerns that the group behind Tether has been printing the virtual currency without keeping an equivalent reserve in a bank account.
According to Tether’s website, the last audit was on September 15, and it showed a reserve of $443 million versus 420 million tether tokens.
However, we know the amount of tethers on crypto exchanges has ballooned to 2.2 billion since then. There’s a lot to be accounted for here.
What’s more concerning is the accounting firm that conducted that audit recently. It just cut ties with Tether. (This is never a good sign. It indicates the firm could have uncovered something it doesn’t like.)
If tether isn’t pegged to a matching number of dollars, the company would be able to print ceaseless amounts of tokens, making them become essentially worthless.
We’ll continue to hear more about tether as the Commodity Futures Trading Commission investigates it. But this is one crypto asset to be wary of.
Watch Out for Crypto Scammers
Ultimately, it comes down to doing your research and relying on trusted sources, exchanges and experts.
For example, Coinbase, Kraken, Bittrex and Cryptopia are somewhat trusted exchanges.
Be cautious when considering involving yourself with an ICO. These are where the “pump and dump” schemes can happen. Of course, there are promising ICOs out there, but to find them, you have to keep your ear to the ground. I’ll continue to keep you updated on them here.
Here's a link to the article -- https://banyanhill.com/avoid-crypto-scams/