When is a Crypto project a scam?
I was asked about a crypto project that a person wanted to invest in. They were worried it was a scam. Here is my advice.
The term ‘scam’ means many things yet the key concept is whether your investment will fail because the project has no chance of success.
I am an expert in new markets, products and business opportunities. Thirty years of experience. I advised the British Government on their launches of Pyramid Regulations in 1992 and 1997. I have advised four other governmental organisations around the world on the opportunity market.
I have seen endless scams that looked credible and great businesses that ignorant people called scams.
Scams are NOT early stage investing. Investing in a new project that has a high chance of failure is not a scam as ALL early stage investments have this risk. Welcome to the world of Venture Capital.
For this risk, you should get a high chance of reward. If the project DOES NOT promise very high returns, avoid it at all costs as the promoters are idiots. It is no surprise that so many billionaires made their fortunes investing in early stage hyper-growth companies. No-one talks of the countless businesses that failed to deliver the promised fortune.
I consider the five big scams to be:
- A Con. An opportunity designed to take money for a product or business that they know does not work. Like Theranos/Elisabeth Holmes blood scam. Yes, even the smartest people get scammed.
- A Ponzi. An investment promises fantastic returns and the returns are paid by the new investments. Bernie Madoff was biggest. Again, the smartest investors get scammed.
- A Pyramid. A promotional opportunity where the promoters earn from the investments of new promoters. Countless MLMs have been pyramids as the incomes were not based on profits from customer purchases.
- Founder’s Fraud. The founders/executives steal the money of a good opportunity. These are all too common in Crypto and are called a ‘rug pull’. I have experienced one of these first hand! Grrrrr.
- Bullshit. LOL. It’s the best name for it. An opportunity taking investments yet clearly have no chance of success and the promoters should know better. Only the naive or greedy invest.
- Fee Fraud. Few people would call this a scam yet countless people are scammed for fees by famous companies especially in financial business. Banks fees, wealth companies, underfunded pensions, etc. These scams are so big, nothing is done yet I had to put it here.
Some sectors are flooded with scams. MLM as the investors are unsophisticated, greedy and emotionally charged. A dangerous cocktail.
New digital areas are awash with scams so Crypto is the biggest area since 2014. Thousands of scams. Yes, thousands. Cons, Ponzis, Pyramids, Fraud/Rug Pulls and pure Bullshit.
How to spot a scam
- Ignore Google. There is a whole industry based around ‘scamwatch’. Run by scammers who sell advertising and affiliate opportunities. Only an idiots would believe a headline saying ‘Is XYZ a scam?’
- Evaluate the product as a customer. SO many scams, especially Ponzis and Pyramids, have products with little market potential. The most beautiful marketing will not change the fact that a lipstick costing $30 has a tiny market. A health product costing $100 has limited markets. A highly complex crypto promoted with little credibility or team ensures their coin has no future. Demand drives value.
- Evaluate the team. Can they deliver the vision? I cannot tell you how many cryptos are backed by guys who will never commercialise the project. They are techies or academics or have no proven executive experience.
Who cares if someone works for JP Morgan or Amazon. They have so many employees, even after 10 years, you are a nobody cog in the system. Also Big company experience, and this includes working for big accountancy and consultancy, nearly disqualifies you from having the mindset for startups!
What is their experience to start and scale a similar company?
4. How transparent? How easily can you get the facts. Scammers hide.
5. Get advice. This is often the stupidest thing someone can do because they ask the wrong people. ONLY ask people who have specific experience in the area of successfully scaling new businesses. Nearly all business executives, accountants, financial advisors, consultants and the like LACK the experience to provide advice worth acting on! If you cannot find someone with the right advice, go with your gut.
It is impossible to protect yourself against the sophisticated scams where credible people have also been scammed. Thus the damage of Bernie Madoff etc. Also Founders Fraud. Thus the damage of Fee Fraud [millions get caught every year].
The old saying ‘if its too good to be true, it is’, is often right. Not always, yet enough for you to be very very sceptical of huge rewards.
My best advice is to find someone who really knows this stuff and follow/ask them.