4 Cryptocurrency Risks and Scams and How to Navigate Them — Part 2
Last week, we shared the first part of our series on cryptocurrency risks and scams. This week in part two, we discuss two other common traps to be wary of when investing in digital currency. If you are considering using cryptocurrency as an investment vehicle, talk with us first.
3) Pyramid/Ponzi Schemes That Will Trade For You
Because dealing with cryptocurrency can be a complex affair, online scammers have developed complicated cons similar to traditional pyramid and ponzi schemes. People have lost a lot of money in such scams and unless you’re well-versed in the technology they can be difficult to spot.
One giant red flag to watch for is giving your money to others who invest/trade for you or if you only get paid when you recruit new members. Also avoid buying upfront “packages” (The Gold Package) promising varying returns. Furthermore, if you see the words “This isn’t a pyramid scheme” in the marketing materials, you may want to look a little more closely!
Unless you get to hold the keys to your private wallet containing your crypto directly or trade via a reputable exchange like Coinbase, you very well could be dealing with a scammer. Now, while plenty of people will make money in cryptocurrency pyramid/ponzi schemes, many will lose and you don’t want that to include you or people you care about.
4) Fake ICOs (Initial Coin Offerings)
While new cryptocurrency can be created without any public investment or offering, many use an Initial Coin Offering (ICO) to fund their startup initiative. ICOs are basically IPOs (Initial Public Offerings) for cryptocurrency and a highly effective way to crowdfund vast sums of money extremely quickly. In fact, recent ICOs have raised millions of dollars in mere minutes.
This speed comes from the fact that ICOs are barely regulated—a good thing if you’re looking to raise money quickly and avoid the rigorous and time-consuming regulations involved with traditional capital raising, but a bad thing if you are trying to discourage scammers. The lack of regulation might as well be a big neon welcome sign for the criminally inclined.
The lack of legal oversight has resulted in numerous fake ICOs being created by crypto con men, who go to great lengths to convince potential investors of their fake coin’s legitimacy. If you’re just getting started with cryptocurrency, it’s probably best to avoid ICOs until you really understand what you are investing in. A good rule of thumb with any crypto investment is if you don’t understand the technology beneath it, start by learning that—and understand “what this crypto actually does”—before you invest. Of course, not all ICOs are fake and if you’re tech-savvy, they can be quite lucrative. In fact, many tout ICOs as the future of venture capitalism and fundraising. Contact us if you’d like help with that.
No venture capitalist would ever fund a startup without proper vetting, though, and the same applies to altcoins. Check the background of the people directly involved with the project and those serving as advisors. Use Google and social media like LinkedIn to verify these are real people with stellar reputations and their advertised skills and knowledge match those found on online resumes and CVs. Also, make sure you understand what the cryptocurrency proposes to do and that you believe the team behind it can accomplish that goal, as with any business investment you would make. With any investment, beware of deals that promise unrealistically high returns and/or just sound way too good to be true—that’s sign they likely are.
If you’re serious about adding cryptocurrency to your family’s investment portfolio, take the next step in your education by contacting your Personal Family Lawyer®. As your trusted advisor, we’ll help you incorporate cryptocurrency into your family’s financial and estate planning, so you can get the most bang for your crypto buck.
This article is a service of Levi Alexander, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
Photo by Alesia Kozik: https://www.pexels.com/photo/close-up-photo-of-four-bitcoins-6777570/