3 Things To Know About Crypto Exit Scams
Scams are nothing new on Wall Street, and now they’re coming to the cryptosphere. Recently, bitcoin influencer Max Keiser called ethereum and cardano “exit scams.”
The staunch bitcoin supporter and host of the Keiser Report said that the majority of altcoins — cryptocurrencies other than bitcoin, such as Dogecoin — are exit scams.
With the boost in capital and interest in crypto, scams are on the increase, Ether Scan reported. The unregulated nature of cryptocurrencies makes them easier to scam and harder for the Feds to shut down.
Here are three things to know about crypto exit scams.
1. What’s an exit scam
An exit scam is a fraudulent practice by unethical cryptocurrency promoters who disappear with investors’ money during or after an initial coin offerings (ICO), Investopedia reported.
There has been an increase in exit scams, particularly DeFi rug pulls. That’s a new form of an exit scam in which crypto developers abandon a project and run off with investors’ funds by taking away buy support or decentralized exchange (DEX) liquidity pool from the market, Cylynx reported.
2. Scam of all scams
DeFi rug pulls and exit scams formed 99 percent of all crypto frauds in 2020, CipherTrace reported.
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3. How exit scams are carried out
“The modus operandi is simple: promoters launch a new cryptocurrency platform based on a promising concept; the ICO then raises money from various investors; the business may or may not run for some time; and then the promoters who had collected the ICO money disappear, leaving the investors in the lurch,” according to Investopedia.
Scammers can create a token on a direct exchange and couple it with a leading cryptocurrency such as ethereum. Once investors have swapped their ETH for the new token or coin, scammers can drain the direct exchange pool. This drives the coin’s price to zero, leaving investors with nothing but practically worthless coins, EtherScan reported.