Posted 11 months ago | by Ben Armstrong
Scams are Terrible for the Crypto Industry – Be Careful Out There!
We try to be positive on the crypto markets. It is a new area (a decade is nothing in the world of finance) and cryptos get enough antagonism in the established media as it is. That being said – we hate to see actual scams happen – and there are almost certainly more out there right now.
To begin – let's talk about what an actual scam is. The world scam is thrown around a lot in the crypto sphere – and we don't think that its use is always justified.
The recent (apparent) Yfdex.Finance exit scam is a real scam. Assuming that the 'founders' are gone with the $20mln in ETH that was raised via a short-duration/high-intensity online media campaign, this underhanded act will serve as a definition of an actual scam.
If you were caught up in the Yfdex.Finance scam – we are sorry for you losses.
Hopefully you didn't invest too much, and you aren't feeling too rough about the losses. Investing in early stage projects is risky, especially when there is zero legal oversight in the fundraising process.
Ok – Let's Talk About 'Scams'
One of the biggest issues that crypto investors face is their own expectations of outsized profits. There is a good reason for this – as huge returns have been made in the crypto sphere over the last few years.
Outside of a few areas in the established financial markets (lets say – options), making 100% (2x) on an investment in a year is pretty rare. As you go up in terms of an asset's value (large cap v. small cap), the chance of creating those big gains falls even lower.
There is a very simple reason for this – sustainable returns are created via value creation – not speculation. A company needs time to make its business model work – and flipping tokens or equity isn't a sustainable business model, as it relies wholly on selling the asset to a 'greater fool'.
A scam – insofar as it concerns a lack of returns on a project – isn't a scam at all. There is no guarantee of making a return on your investment – regardless of the industry.
If a person goes into the market with the expectation of making 10,000% returns on their money – they will likely be taken advantage of on a regular basis – as their view of what is a reasonable return is so disconnected from reality.
Ill Will and Real Scams
In fact, most VC-backed businesses never bring a product to the market – and they are in no way a scam. It is the reality of small businesses, and for anyone who thinks they can just throw money at small companies with interesting ideas – this is your wake-up call.
Small businesses take investor capital – burn it – and then liquidate the company's assets when it fails. It isn't a scam, and speaking from the standpoint of probability, it is far more likely to happen than not.
So – what is a scam?
Real scams are structures that are designed to deceive, and aren't honest with investors. An exit scam is a good example of this, as is a ponzi scheme. These structures are only meant to separate gullible investors from their funds – with no intention of creating value.
A startup is risky – but there is the chance that it will create massive returns over time. A scam is guaranteed to create losses for investors, as the scam's operators have created a structure that is a one way street – from the victims' pockets – to the scammers account.
If you want to invest in early stage companies because of the potential returns, or you love the idea – great. Don't throw too much at it, and hope for the best. Remember, in most cases, scammers take your money because you give it to them.
Be sure that you are ok to lose any money that is invested in risky projects – and you won't have to worry when it doesn't work out.
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