Cryptocurrency adversaries often use exit scam scandals as an example of the industry’s incompetence. What they tend to forget is that the traditional investment field is not immune to all kinds of fraudulent manipulations too. 

The only difference is that crypto Ponzi schemes are typically too unsophisticated and usually aimed at people with little to no financial literacy. 

The Biggest Gold Scandal 

Just when high-profile scandals with hedge funds, like the one with Bernard Madoff, seemed to quiet, another bombshell dropped. Only a few days ago, multiple sources reported that at least 4% of the Chinese gold reserves are fake. Kingold Jewelry, a company that is listed on the NASDAQ Stock Market, is responsible for producing fake gold bars that were used as collateral for loaned money from more than 14 banks.

Now, how could something like this happen? Apparently, the founder of Kingold had influential friends who helped him cover up his tracks. Even now, corruption and the power of connections are still quite strong even in some of the most liberal countries.

The money that has been loaned in the course of this affair went into purchasing land and supporting the Chinese housing bubble. Experts believe that this is only a small part of the fake gold margin that just happened to be uncovered. 

Scammers always show up when there’s money involved

What makes things worse is that the loans that were backed by the fake gold collateral are insured by the insurance companies and will eventually drag down every participant in this chain. 

The gold scandal was not the only manipulation scheme that recently came from China. Another Nasdaq-listed company, Luckin Coffee, just admitted to overstating its revenues by almost $300 million. 

To make things clear, similar things happen all over the world. It’s just that the Chinese economy is one of the largest economies in the world nowadays and there are plenty of people who want to get a piece of its pie. 

Wealth always attracts opportunists and those who want to cash in right away. And only a few years ago the crypto space became a perfect playing ground for scammers and their occasional victims.

The Biggest Crypto Scams

One of the most vivid examples of a cryptocurrency exit scam was OneCoin. According to official data, the project originated in Bulgaria, managed to collect nearly $5 billion from its unfortunate investors without any intention of giving anything back. However, the sum might be even more inconceivable – some say the real number is close to $19 billion.

The original CEO of the company disappeared back in 2017 and her brother who replaced her after that was soon arrested for fraud. And yet, that didn’t stop people from trusting OneCoin with their money. The whole story resembles a cult and actually has very little to do with crypto or blockchain.

Now you might say that’s the thing with crypto – you never know if the tech behind the project can live up to expectations. However, that’s not OneCoin’s case – they never even had a technology to begin with. The whole scam was based on nothing — no blockchain created, no single line of working code. It really seems like OneCoin investors were seriously brainwashed into this dubious deal. 

To save yourself from crypto scams educate yourself and always use secure storage

Another ludicrous crypto project — Bitconnect — is more famous because of its bizarre performance rather than the amount of money they raised. If you haven’t seen this Bitcoinnect meme yet, you should (and there are a few entertaining remixes, if you’ve got time). 

Bitcoinnect was aggressively promoted by a few popular YouTubers and eventually, they managed to collect around $3 billion before the exit scam happened. 

Could the devastating result have been predicted? Even if you look past the bizarre introduction, red flags were all over the place. The Bitcoin lending platform promised about 40%ROI, which is clearly unrealistic. Their marketing strategy was over-the-top as well, and they hired multiple affiliates for promotion and bad shilling – a typical ICO trick that actually worked. 

Eventually, Bitconnect received a notice from regulators and once they started receiving bad press, the company created their own news page that somehow managed to come round Google’s algorithms and dominate the news field, continuing to preach their own version of reality. And then, all of a sudden, they closed the operations of both the lending platform and the exchange, leaving millions of investors all over the world broke and devastated.

The Bottom Line

Luckily, the era of the ICO and its horrendous exit scams finished just as quickly as it started. It doesn’t mean that the crypto space is now fraud-free. In a world where fake gold is used as collateral and backed by state-owned insurance companies, anything can happen.

The best thing we can do is not lose our common sense, do our research before investing, and diversify.

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