In 2009, Bitcoin became the first cryptocurrency in an effort to decentralize the money supply. Over the last 14 years, more than 21,000 additional currencies have entered the market.
Today, more than 50 million Americans own some type of crypto, and 57% of those are millennials. However, with the recent exposure of the fraud at FTX, investors should understand the signs of cryptocurrency fraud.
Some cryptocurrency scams have significant marketing. They may begin with online or social media ads that feature “celebrities” or “billionaires” who made it big with a specific type of cryptocurrency. These funds also claim you can quickly make significant money on your investment. They may also state that your risk is low or nonexistent.
Significant expenditures by the CEO and management
Watch how the CEO and management spend money. Some fund managers embezzle customer money for personal purchases, such as homes worth millions of dollars. Every dollar taken from a cryptocurrency fund impacts its liquidity and thus your investment. Watch for large or consistent withdrawals by company management.
Lack of trustworthy information
Every company should keep accurate financial records. They should include financial controls, asset valuations, incomes and expenses. Look for inaccuracies and unusual transactions, such as large withdrawals. You should also look at funding. In the case of FTX, its own token, FTT, was its largest asset.
In addition, the company’s papers are incomplete, poorly written or full of lies as you dig deeper, look for fraud.
Investigations into the company
You should also pay attention to any investigation into the company. US agencies, including the Federal Trade Commission, investigate claims of fraud. Until these organizations resolve these investigations, avoid investing in the company.
As with any investment, do your due diligence before purchasing cryptocurrency, and look for signs of fraud.