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The cryptocurrency world is highly decentralized and unregulated, making it very susceptible to fraud or forgeries. Read on to discover cryptocurrency exit scam—and how you can identify one.

What is a Cryptocurrency exit scam?

An exit scam occurs after promoters of a cryptocurrency disappear with the investors’ money during or after an Initial Coin Offering (ICO). With many fake ICOs on the rise, investors need to be very careful where they put their money.

How it works:

  • It begins with the promoters introducing a new cryptocurrency platform with very favorable concepts for the investors
  • It then proceeds to raise money from the investors using an ICO
  • In some cases, the business may or may not run
  • Then finally, the promoters disappear with the collected ICO money

Exit scams are becoming more common by the day. The most recent exit scams to hit the cryptocurrency market are Confido and LoopX. Confido was shut down in November 2017 disappearing with a total of $175,000 investor money, which had been collected in its ICO. This resulted in a fall from $6 million to $70,000 of the cryptocurrency market cap. LoopX exit scam in February 2018 resulted in investors losing more than $4.5 million after its creators disappeared.

Tracing the scammers has proved to be difficult due to the decentralized, unregulated, and anonymous nature of the market.

How to identify a cryptocurrency exit scam

Although it might prove difficult to identify an ICO that is likely to be a fraud, investors are highly encouraged to perform due diligence before choosing to invest in a particular platform’s ICO. The following red flags can be used by investors in helping them make informed investment decisions and to protect themselves from scams.

The credibility of the team

Investors should research in the credibility of the project through assessing the credibility of the developer and teams. This can be done through assessment of their social media platforms such as their LinkedIn pages and the kind of following and connections they have.

In the case of Confido, if the investors had done an assessment of the team’s social media pages, they would have realized that the pages were fake owing to the fact that they had been recently created and barely had any connections and would have avoided being scammed.

Exaggerated return projections

One of the most obvious telltales of an ICO that might be fraudulent is the returns that it promises its investors.

BitConnect Scam


BitConnect, which shut down in January 2018, is the most popular crypto investment platform to perform an exit scam. It promised its investors steady returns of 1% per day. With the uncertainty of the crypto markets, such returns are unrealistic and investors should stay clear of projects whose returns seem too good to be true.

Documentation standards

Before investing in an ICO, one should first review the ICO’s whitepaper. A white paper outlines everything that an investor might want to know about an ICO before they invest. It may include the design and development of the project, as well as what it plans to achieve. A project that doesn’t have an ICO or whose ICO is not clear or understandable is a clear red flag to investors of an impending exit scam.

Unclear business models

An ICO’s with an unclear business model is one of the red flags investors should look out for. An investor should make sure that the project’s working model is not a concept only or non-existent. They should avoid an ICO that doesn’t have a working product yet as it most likely will not work. Investors should avoid placing their trust in projects that don’t seem reliable. They should also invest in projects whose promoters have proved that an investment with them will be worthwhile.

Heavily promoted offerings


Another red flag should be huge promotions by new ICOs with founders who are not known. Such investments opportunities come out of nowhere and create a lot of interest with offers that are very enticing.

For example, the Confido campaign and promotions attracted a lot of interest all over. According to relevant reports, the Confido team paid some online forum users to spread the word about its offer and create investor excitement—something that worked to the advantage of scammers. Investors should keenly scrutinize market efforts for new projects in order to avoid exit scams.

Final thoughts

Generally, investors should always maintain a skeptical perspective in the assessment process of Initial Coin Offering in order to avoid getting into a cryptocurrency exit scam. They should always ensure that before they invest in a cryptocurrency project they understand the company’s business and they trust the teams and people behind it.

Using the red flags identified above, investors will be able to identify viable investment opportunities and avoid those that might be fraudulent.

Is there an ICO project that you think looks a scam? Join the conversation over at Telegram (https://t.me/coinstaker)

Images from CoinStaker Library

Author info

Tony is a writer for the crypto space. He presents cryptocurrency and blockchain topics to the public in a way that he only can. While carefully researched, this article should not be taken as an express investment guide. Do your own research and consult a financial advisor before you invest in cryptocurrency.

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