cryptocurrency trading scams market manipulation

Cryptocurrency is probably the greatest innovation of the 21st century so far. The freedom it provides, considering how money and the internet work, and how big data has compromised our lives, is absolutely necessary. But the explosion of altcoins and tokens further down the line has created the conditions for a variety of cryptocurrency trading scams. These are hurting the space, casting a long shadow on the technology that will become the cornerstone of individual freedom globally.

How do Cryptocurrency Trading Scams Work?

Those cryptocurrency trading scams have emerged largely thanks to the amount of money that ICOs raised. Since most of those projects were never viable, they rely on trading to keep them afloat. In other words, speculation and market manipulation.

Various trading groups and other market making schemes have merged to fill in the needs of projects that, thanks to resurging cryptocurrency prices, still have money. Their scheme works in one of two ways:

  • They take money from projects promising to prop their indigenous token or cryptocurrency in the markets, and then run off with the funds
  • Groups actually take money from projects and trade the indigenous token or cryptocurrency that belongs to that project multiple times, creating the sense that there is “trading volume” behind it

How is this a Scam?

Cryptocurrency trading scams either profit from the money these ICOs gave them without delivering on what they promised, or by attracting unsuspecting traders or enough people who are new to the space, to the token they are propping up, creating an opportunity to dump it on them, deflating the manufactured volume.

The victims are either the projects themselves – which could amount to scamming the original scammers – or people looking for a quick buck who do not know enough. Either way, these pumpers contact the projects, offering an egregious B2B solution.

How Successful are these Cryptocurrency Trading Scams?

We don’t know how successful these cryptocurrency trading scams are. In fact, we are writing based on the fact that we have been approached by them tens of times, so we feel the need to warn everyone out there about their modus operandi. Our evidence is completely anecdotal, but it is reasonable to assume that these cryptocurrency trading scams have a certain degree of success, or they wouldn’t be reaching out anymore.

CoinJanitor’s Interaction with Cryptocurrency Trading Scammers

Just to highlight how these cryptocurrency trading scammers approach projects and what they offer, we have decided to post the most recent offer we got from one of them. Here are the screenshots:

This is how cryptocurrency trading scammers approach us usually. Their offer is pretty standard.

In this case, the scammer pushes back when we reject the offer. Our policy is and will always be that we do not intervene in the markets. We will explain why further ahead.

Generally, once we understand we are being approached by one of these cryptocurrency trading scams, we just ignore them. This time around we decided to call them out. Here is what happened next.

This message is appalling! It is clear that this particular cryptocurrency trading scammer not only stumbled over their own words. They also exposed the scam for what it is exactly.

How Ridiculous can Cryptocurrency Trading Scams be?

The scammer in this case proceeds to “dump” us after they clearly reached out. But that is just the tip of the iceberg. There are 2 arguments there that make what they do abundantly clear:

  1. They claim that they do not affect market conditions, except for “adding funds to the market through the order books to make the assets liquid.”
  2. In this case, the scammer recurs to a muddling of terms to make it look as if we don’t understand what is going on. They refer to what we think is happening as “wash-trading hidden orders.”

Thinly Veiled Lies

Anyone who has 30 minutes of experience on any trading platform knows that you can actually see the orders placed on each asset. You can also see the volume across time, and you have access to other kinds of data through either the exchange or other tools to understand what is happening with the asset. How does a sudden rise in liquidity for the asset look? Obviously like a scam.

Apart from that, adding funds to the market is intervening in the market by definition. If the project buys this kind of service, then it would be intervening in the markets in its own behalf. We are adamantly opposed to that for a number of reasons:

  • If anyone wants to buy JAN, they should just go ahead and do it. Everyone knows that these markets are small enough, so it is easy to manipulate them with a relatively small amount of money. That is an inherent risk and the reason why people should check volumes historically and engage in fundamental analysis
  • Taking the limited resources that we have – assuming that these scammers are not going to just run away with our money – and throwing them at propping the price of JAN up would be a betrayal of our community, which expects us to use those resources to buy and decommission deadcoins
  • This behavior would also attract people who trade JAN just to make a quick buck, which is precisely the behavior that keeps some coins that should be dead by now, alive for longer
  • These groups often demand that you list on a certain exchange – are certain exchanges sending these scammers over or do they have deals with them? We will not waste resources on additional listings when the ones we have are serving the community well. We would much rather use those resources to achieve the goals that we set
  • We want community members and JAN holders who understand what we are about. We want to hear from them, we want them to contribute. The kind of trader that these services would attract is not likely to contribute and become and active member of our community, so why should we invest in attracting them?

A Message for Cryptocurrency Trading Scams and Everyone Else

There was one other point that this cryptocurrency trading scammer raised that was worrying. They said that “market maker initially came from classical stock markets” and that “he is one of the essential market participants.” We believe in the freedom that cryptocurrencies bestow upon their users. This technology has the potential to do everything that traditional markets haven’t been able to:

  • Provide financial tools to the world’s 2 billion unbanked people
  • Safeguard users from government excess like expropriation
  • Prevent financial institutions from controlling the lives of people to the point to which they can become enablers of censorship

Of course, that this freedom comes with the liberty to emulate what cryptocurrencies were created to fight, like market-making and other dubious trading practices. We want none of that. We support a new way of working and behaving; we want you to make your own choices and be free from the kind of misinformation cryptocurrency trading scams can create. So, here is our message for all these malicious actors: cryptocurrency is an alternative to your classical stock market and traditional financial tools. We will do everything in our power to clean the space and keep it that way.

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