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Digital Fraud & How to protect Yourself: From ICOs to Bitcoin Scams

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Digital fraud continues to grow apace. More worryingly, the increasing variety and sophistication of the scams themselves has seen the number of people falling victim to scams growing just as fast. And we are no longer just talking about standard phishing. Today’s digital criminals are highly developed and extremely quick to jump on the latest online trends to take full advantage of every opportunity.

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As dispute resolution specialists we are often the first port of call for clients who have found themselves in particularly difficult situations. Unsurprisingly more and more of these situations involve digital fraud and we wanted to use this opportunity to outline some of the fastest growing and most regular scams and offer a little advice as to how you can separate scams from genuine opportunities.

1. Binary options (also known as all-or-nothing options, digital options and fixed return options) trading

A binary option is basically a financial option in which the pay-off is either a fixed monetary amount or nothing at all. There are two types of binary option:

§ A ‘cash-or-nothing’ option which will pay a fixed amount of cash if the option expires in profit

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§ An ‘asset-or-nothing’ option which will pay the value of the underlying security

It is the ‘or nothing’ that’s attracted fraudsters and there are now hundreds of trading platforms operating outside the regulated financial markets.

The scam is simple. A fake company owns a website that makes them look like a legitimate binary options broker and offers users access to a ‘live’ trading environment whilst promising accuracy, transparency and guarantees designed to settle the nerves of a would be investor. The investor then makes an initial deposit which they will see grow online at which point they’ll be asked to deposit more.

Eventually, despite the appearance of healthy growth, the website will suddenly fold taking all of your deposits with it. Alternatively if you have asked to withdraw your investment, you may be asked to top up your account to take your balance to the minimum required to make a withdrawal … at which point the website will fold taking all of your deposits with it.

If you fall victim to a binary options scam, resolution can be tricky. As these are fake companies, it’s very hard to find out who the owners are never mind begin the process of recovering your money. Waters are muddied further by the fact they will most likely be operating outside the UK (Israel has the dubious honour of housing the majority of these fraudsters) and operating in an area with little or no regulatory environment.

2. Initial Coin Offerings (ICOs)

The easiest way to explain it is that it’s a type of crowdfunding that has grown out of the current growth in popularity of Bitcoin and other cryptocurrencies. However instead of providing a shareholding in return for an injection of capital, the company seeking investment will release a fixed number of its own crypto-tokens then sell those tokens to investors. Usually the investors will pay for these tokens in Bitcoin but some will accept the major international currencies.

There is a common misconception that an ICO is the same as an IPO (an Initial Public Offering) but there are actually two major differences:

§ In an IPO the shares purchased by an investor are representative of their voting power and their level of ownership. This isn’t always the case with an ICO and just having the company’s cryptocurrency doesn’t guarantee voting or management rights; they are just something to be exchanged for other currencies at a later date.

§ As IPOs are an integral part of the world’s trading exchanges, they are heavily regulated. As cryptocurrency crowdfunding is new it does not yet enjoy the same protection which means any involvement carries as much risk as opportunity for an investor.

As this is still a developing area and an area that’s creating a bit of a buzz in the tech market, digital fraudsters have been quick to take note and fake investment opportunities are springing up at an increasing rate. Experience of resolving disputes after the fact has taught us a few lessons as to how to tell a real opportunity from a scam so if you are attracted by an ICO we would urge you to:

§ Make sure your investment will provide all of the ownership and voting rights you want

§ Understand the risks and if you are uncomfortable making a significant investment via a platform that sits outside the usual market regulations, this may not be for you

§ Do your due diligence and make sure the company offering the ICO is a going concern, has a recognised legal entity and that the project you want to invest in has the required research and staffing behind it

§ Make sure any investment you make will be is deposited into an escrow wallet and that at least one of the keys to that wallet is held by a trusted third party

§ Ensure you have a complete and professionally drafted set of legal terms and conditions signed both by you and by the company you are investing in

§ Ask around or search the internet in case no one has ever heard of the company launching or there is no record anywhere of the company and/or the entrepreneurs behind it

§ Ask to see both the business plan and a record of any work-in-progress (WIP); a negative or evasive response should be treated as a red flag

3. Bitcoin scams

Having hit its highest ever price, Bitcoin is currently in greater demand than it has ever been which means criminals have never been as active in finding different ways to exploit it for their own gain.

As it is so attractive the range of Bitcoin scams has grown almost impinged and the rise and rise of social media has provided the perfect platform for scammers to promote every variation. The list of scams we have come into contact with includes:

§ Malware downloads

Hugely attractive Bitcoin transactions are used to persuade you to download damaging software designed to damage or gain access to your computer.

§ Bitcoin phishing ‘impersonators’

Criminals use the Bitcoin logo to gain a victim’s trust then, once that trust is established, a phishing website entices users to enter their private Bitcoin key to check it exists in their database then the key is then phished and the associated account is emptied.

§ Bitcoin-flipping

After you pay a joining fee to exchange bitcoins and double any investment you make within a very short time-frame you find your bitcoins have been simply stolen.

§ Bitcoin pyramid schemes (also known as Multi-Level Marketing or MLM Schemes)

A high level of return is promised for a low level investment but the size of the return is linked to you sending the links to your friends to get them to join too. However once a few hundred people have signed up paid the joining fee, the scheme folds.

§ Fake Cloud Mining Services

Bitcoin “miners” validate transactions in the blockchain using complicated mathematical equations in exchange for new bitcoins. Scammers promise the same service then collect the ‘mining fees’ without actually doing any mining. Initially they will probably pay out a few small amounts but these soon dry up as the scammer disappears with the funds.

§ Bitcoin Investment Schemes

Again these scams promise high levels of return in return for providing low levels of capital for ‘investors’ who purport to trade digital currency. Like cloud mining scams they tend to pay out a few small returns then the payments stop and the scammer absconds with everything their victims have invested.

§ Fake Exchange Scams

Bitcoin exchanges (marketplaces that trade Bitcoin for traditional currency or other cryptocurrencies) are legitimate but fake exchanges are springing up every day. The fake exchanges will ask users to deposit funds to purchase Bitcoin whilst enjoying lower transaction fees than regular exchanges. The only thing is as these exchanges aren’t real, they never realise the promised return.

§ Bitcoin Donation Scams

In the wake of recent events, this is without doubt the most cynical type of scam. More and more scammers are creating fake donation pages asking people to donate in bitcoin rather than via better policed platforms like PayPal.

So how do you protect yourself? With all of these scams there is a basic rule, if it looks too good to be true, it probably is. If someone sends you a hugely attractive offer out of the blue, you need to immediately be on your guard.

Here are 4 basic rules we would urge you to follow:

§ Never trust any unsolicited email or social media post

§ Never click on any associated URL however high the potential return is claimed to be unless you know and trust the sender (and remember it’s now easy to replicate a social media account)

§ Never engage with or provide personal information in response to an email or social media account until you have checked to make sure the sender is 100% genuine.

§ Never enter into any type of financial transaction on the back of an email or a direct message on social media until you have completed all off your due diligence.

And if you do fall victim never try to resolve the situation on your own.

These may be criminals but they are highly sophisticated criminals and will be hidden behind layers of cleverly created camouflage. Always engage an experienced lawyer with a proven success record in resolving cross-border multi-jurisdictional disputes involving digital fraud. If you are going to recover lost funds, putting the right strategy in place immediately will be key to your success.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Richard Howlett is a lawyer at Selachii Solicitors in London. He acts for businesses and individuals in a range of disputes that include complex litigation, fraud, bitcoin and cryptocurrency.




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1 Comment

1 Comment

  1. beckyvn

    June 20, 2017 at 2:34 am

    I am is the victim of Bitcoin scam in just a week ago ! The story they (Scamers) make is : Bitcoin could be hacked ! As their explaination : When you send them a mount of BTC, they will hack it by the double (or 3,4… times) the amount by made many complicated techologys in transaction …
    Simple, If you send them 1 BTC, they will return you 5, 6 or even 10 BTCs !
    Greedy make us be blind. I lost 0,3 BTC for them.
    So, My lession is NEVER try to become a Smart ass in BTC. Don’t find any hacked method in the HACK FORUM / WEBSITE. They all scamers !
    Here are two websites which the Admin and fake members are scamers :
    1. http://www.crdforum.com
    2. http://hckleackedworld.com

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Analysis

Long-Term Cryptocurrency Analysis: Bitcoin and Ethereum Break-Out of Declining Trends

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The altcoin-led rally continued since our previous look at the long-term charts, and the major coins all confirmed a new short-term uptrend. Most of the largest digital currencies also broke out from their broad declining trends, as the total value of the segment is now more than 50% above the level around the correction low.

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BTC/USD, Daily Chart Analysis

The overall picture remained positive, with only Bitcoin’s weakness causing headaches for crypto bulls, as the most valuable coin is hovering close to declining trendline that dominated trading throughout the first quarter of the year.

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Despite the short-term weakness, BTC is still among the stronger majors from a long-term perspective, and with the secular uptrend clearly being intact, long-term investors should hold on to their coins and add to their holdings on the short-term pullbacks.

Crucial resistance is still just ahead between $9000-$9200, with further levels at $10,000 and $11,300, while support is found near $8400, $7650, and in the $6150-$6250 zone.

ETH/USD, Daily Chart Analysis

Ethereum built upon its recent relative strength, and the coin broke out convincingly above the declining trendline, and reached the next key resistance zone between $625 and $640 before the momentum of the move stalled.

While there are still several strong zones ahead, with the closest ones near $725 and $845, barring a quick move back below the declining trendline, the coin should continue the advance. With the long-term MACD still just in neutral territory, long-term investors could add to their holdings during short-term corrections, with key support levels at $500, $450, and $400.

(more…)

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 229 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Crypto Update: Coins Hit 6-Week Highs as Rally Continues

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Bullish price action is still dominant in the cryptocurrency segment today, despite the recent lofty gains, and the overbought short-term picture in the ace of most of the majors. Correlations continue to break down, as more and more coins are in confirmed uptrends, with the total value of the market hitting $400 billion for the first time since early March.

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The top digital currencies are mixed today in the generally positive environment, with Bitcoin Cash, IOTA, Ethereum Classic, Dash, and Monero showing relative strength, in the face of the slightly overbought short-term momentum readings. While this is not the best moment to enter new short-term trades with regards to the majority of the coins, the long-term setup favors further gains in the coming weeks.

BTC/USD, 4-Hour Chart Analysis

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Altcoins have been leading the market higher in the last couple of weeks, and Bitcoin is still stuck below the $9000 level, as it continues to slightly lag behind from a short-term perspective. The coin ran into the strong resistance zone between $9000 and $9200 after breaking out of the broad declining trend.

Now a pullback is likely, given the slight weakness, with a possible test of the prior swing high at $8400. In case of a bullish move, the next target is at $10,000, and long-term investors should still add to their holdings on the short-term dips.

ETH/USD, 4-Hour Chart Analysis

Ethereum kept on creeping higher to marginal no rally highs in the last couple of days, nearing the $650 level despite the overbought short-term picture. Short-term traders should still not enter new positions here until the overbought readings are cleared, while long-term investors could still add to their holdings during the pullbacks.  Resistance zones are ahead near $735 and $780, while primary support is between $555 and $575.

Altcoins Diverging but Bulls Remain in Control

XRP/USDT, 4-Hour Chart Analysis

As we noted, the correlation between the coins is lower than during the downswing, and that confirms the bullish price action in the segment. Ripple is trading in a consolidation pattern near the $0.84 level, and although the overbought momentum readings are not yet fully cleared, the trend is clearly bullish and a new short-term buy signal is likely in the coming days.

Among the other recent leaders, IOTA triggered short-term sell signal, reaching the strong resistance zone near $2.2. EOS, Stellar, Cardano, and NEO are consolidating their gains, while Dash, Monero, and ETC are trading slightly above last week’s highs, but traders shouldn’t chase them higher here, as a short-term correction is likely soon.

Stay tuned for our detailed long-term technical analysis coming out later on today.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 229 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Bitcoin and Gold are Trading Inversely With One Another

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Advocates of bitcoin often compare the digital currency to gold for its finite supply and store-of-value characteristics. While BTC hasn’t come close to dethroning gold as the world’s most trusted safe-haven, it has steadily outperformed bullion amid the latest recovery. This has some people asking whether virtual currencies are eating away into gold’s demand.

Inverse Relationship

Strategists have identified a strong inverse trading pattern between gold and bullion stretching all the way back to the fall, right around the time that cryptocurrencies rebounded from a China-induced selloff. As bitcoin and other cryptos surged, gold experienced a steep fall from a high above $1,351 in early September to a low of $1,241 just three months later.

As bitcoin cooled down in the new year, gold resumed its upward trajectory and eventually peaked near $1,370 at the end of January.

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Below are the charting patterns for gold and bitcoin going back one full year.

The latest divergence is easy to spot. Since hitting a settlement high of $1,360 on Apr. 11, bullion has declined 2%. Over the same period, bitcoin surged 27%.

Bitcoin’s oversized percentage move relative to gold is a reflection of underlying volatility in the cryptocurrency market. Crypto assets as a whole are but a tiny fraction of gold’s $7.8 trillion worth. That said, the digital asset class peaked above $830 billion earlier this year, making the case for a trillion-dollar market more believable.

Systemic Risks

Proponents of bitcoin’s safe-haven status generally agree that the cryptocurrency is well suited to outperform the market during periods of heightened economic and political instability. This is generally believed to be the period in which gold prices thrive. However, unlike gold, bitcoin has also outperformed during periods of relative calm.

The second-largest bull market in history started off as a positive for gold as prices crossed $1,900 a troy ounce in 2011. However, bullion hasn’t been able to hit anywhere near those levels ever since. Bitcoin, on the other hand, has been the world’s best-performing currency (if one calls it that) in six of the past eight years.

Although the charts seem to indicate an inverse relationship between gold and bitcoin, it’s much more difficult to prove that investors are swapping one asset for the other at any given time. There’s some anecdotal evidence to suggest this is the case but a lack of trading data makes it difficult to conclude definitively one way or the other.

Supply and demand factors must also be weighed in analyzing the price trajectory of both assets. Gold’s total supply is increasing by an average of less than 2% annually, according to the World Gold Council. At the other end of the spectrum, the final bitcoin is expected to be mined in 2140, with total supplies engineered to decline until that date.

On the demand side, gold has been losing its allure as investors continued to pile into stocks. In 2017, appetite for bullion fell by 7%, with gold-backed ETFs plunging to one-third of the previous year’s demand. On the other hand, bitcoin’s demand has skyrocketed as more traders noticed its meteoric rise.

One area in which bitcoin has an advantage over gold is non-correlation. As the above examples clearly demonstrate, BTC is not correlated with the broader market. Gold, on the other hand, is influenced by risk-off sentiment, geopolitics, interest rates and inflation, among others. At present, these factors may play into the hands of bullion as investors prepare for the new business cycle.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 344 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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