Bitcoin: A Hotbed For Scams?

The world of finance and investing is not pretty in general. 

Investment and Investment Advice: Thieves and Fraudsters at Work

  • NEW (June 2021): Big platforms such as YouTube are acting as if they were the best friends of most outrageous investment scams.  They will win if you take them to court as it turns out. They basically refuse to take down fraudulent ads. 
  • To profit from stupid and desperate investors, there are countless financial scams. We have in particular pump and dump schemes, or more recently in Ukraine
  • Before Xmas 2020, we have a scam claiming that Elon Musk will give you your bitcoins or your Ethereum back twice.  You just need to be so stupid enough to send them anything, and they will be happy to steal your money instantly. Then what are going to do? Call the Police?  

We live on a planet where investing is extremely hard. Examples.

Investing with Buffet

Just before the current financial crisis of 2020, the Economist pointed out that Buffet, the famous guru of stock market investment has done very poorly. This has something to do with the fact that very recently Buffet was withholding some 122 G$ in cash, due to lack of decent stock investment perspectives, or simply anticipating a recession. Please do not judge him at this very moment, as keeping this cash gave Buffet the chance to buy stocks cheaper as the recession finally came in March 2020. It is a long game and we need to look at a long term picture.

HOWEVER. Buffet was proven badly wrong for decades. Not only that Berkshire has achieved in 2019  only 1/3 of gains of S+P 500, see graph. The really important message is that in the last 10 years Buffet has NEVER EVER outperformed S+P 500.

Buffet will explain you that his strategy is better in tough times, times of bear market?  However, we now live in the era where we print so much money that the stock markets are rarely ever falling. Therefore Buffet rarely has any opportunity to be right (eventually in 2020 he has due to rare black swan events). Even so in 2020 Buffet sold airlines in panic which clearly was a mistake.

Bitcoin does a lot better than Warren Buffet, no doubt about it! But this was easy. A monkey buying stocks from S+P 500 at random will do better than Berkshire for the whole period of the last 10 years.

Why Investing is So Hard?

One interpretation of this is the super perverse nature of the devilish invention of open (lit) financial markets. No one makes money on these markets, except some very strong big-data-driven predatory forces which dominate this space with asymmetry of information. It is not just about cheating due to mass surveillance abilities (a passive attacker side). For example recently Robinhood was fined 65 M$ for cheating on trade prices.

We also have an active and interactive side of it. It is not only about speed with high frequency trading. There is a broader problem of poorly placed trust and prevalent investor stupidity. We have a substantial and well organised sponsored propaganda industry, which is about confusing the investors with noisy totally irrelevant financial information (pure short-term random number series), fake science and fake news, such as fake market trends, fake market sentiment analysis, fake scientific news, and fake new technology developments,  and countless other investor resources, all of very dubious merits and quality. There is so much information and resources for investors and all this is for free, right? This is a bad sign.

In general the system is perverse in many ways. In one way it is just another game in each, quite obviously, businesses which are well prepared and employ bit data scientists always win, and individuals always lose, due to asymmetry of information (even without any attempt to cheat). 

In addition, in the US, perverse taxation rule encourage the companies to spend their cash to buy back their own stock. Many businesses will simply use an important part of their spare cash they have to pump their stock. This is done because highly paid executives make money by selling their stock or their options. Crypto assets are also used for tax optimization and they compete with the stock market in this space.

On Crypto Theft and Malicious Actors

  • In July 2020 a modest sum of 118 K$ was earned in few hours by hacking Obama twitter account. Not a great success. We believe that hacking Obama account to make news in worldwide media is worth more than 118 K$. This is therefore rather a publicity stunt designed to achieve another effect, for example in order to submit social media giants to oversight by politicians, make them pay some taxes, or to weaken the incumbents and promote other competing businesses.  
  • Simple scams such as fake QR codes do work well to get moderated amounts in tens of thousands of dollars, and will always work: some people will always fall for it. It was observed in September 2019 that Google would most likely help criminals to steal your bitcoins. Or Google have done nothing to filter out criminal fake QR services: see here.
  • Mobile phone operators will also most likely help criminals to steal tens of millions of dollars, see here. The same happened to me: my mobile phone was stolen, and an SFR store in Paris have issued me a new SIM card … without asking for my ID. Any criminal can steal your identity and mobile phone operators do not care! and then reset your passwords for other accounts, maybe log to your bank, steal your bitcoins etc.
  • Crypto currency is where loads of money gets stolen:
    • It was 1 billion in 2018, see here.
    • Then 1.2 billion in just Q1 od 2019!! See here.
  • In many cases criminals will never go to jail, see here.
  • At least 325 millions of dollars were earned by creators of CryptoWall malware.
    Bitcoin is disruptive technology for ransoms and though a small minority of about 1.4% of victims pay, criminals are still earning a lot. An ransom payments have exploded in 2016. And in 2017 it became even worse.
  • Ransoms are not the worst, compared to investment scams. It is estimated that 132 crypto currency scams have costed naive investors 16 billion dollars. 10 billion were lost just in 2019, see pointers inside this paper
  • It is estimated that North Korea has 1.5 G$ in crypto currency.
  • Is crypto currency a dangerous cult? Here is one highly critical paper from the Financial Times. 
  • A lot of fraud is done openly, many people know. There is a sentiment of impunity and lies are scattered all over the place.
    • Smart people will tell you: it is unregulated Wild West there and you should be warned.
    • But this does NOT excuse the shocking lack of public discussion about all the wrong things which are going on here. Cynical attitudes has dominated since ever.
  • The world champion of telling lies on a regular basis and not caring at all about his reputation is Craig Wright:
    • previously caught in act trying to cheat the UK journalists,
    • now he is facing charges for forging a signature of a deceased friend in order to steal billions of dollars in bitcoins.
    • then further he is associated in some shameful attempts to further cheat naive people by calling Bitcoin Association something which in the eyes of the whole planet is closer to a scam than to bitcoin even though anybody and go and “fork themseleves”. Yes it is allowed to clone bitcoin and called it “bitcoin XYZT”. What is not legal is to call one self “bitcoin Satoshi” = we are THE main and only bitcoin or the only one which is true.
    • then we have seen more lies and fraud on the same topic, see here and here.

Older stories

  • There were plenty of ICO scams masquerading to sell Telegram ICO tokens.
  • More about thefts in relation to the last big explosion of ICOs, see here.
  • Old: UFO is back: yes, UFOMiners are clearly a criminal scam, yet Yahoo Finance and CryptoCoinsNews and CoinTelegraph have fallen for it! (again) and kept presenting them as a genuine company for many many weeks/months since Oct 2016. What is also amazing that nobody reports these scams so that they are VERY LIKELY to succeed (some people will just send them money trusting theses reports). Journalists who work at other news outlets such as Coindesk are also guilty for NOT writing a word about these scams.
  • Old old: 11 millions dollars were already lost in bitcoin scams, source: coindesk. An old paper about bitcoin scams.

On Crypto Exchanges – Shadow Banks

  • Price manipulation is kind of allowed. Let’s admit it is OK to pay an exchange to list your coin. Or when bitcoin appreciation say above 15,000 is strangely not happening UNTIL some bets on 15,000 have expired. 
  • Now there is worse.
    • Karpeles admitted in a Japanese court that he is responsible for the bot Willy fraudulent trading. However if bitcoin went up a lot, these bots made things worse for Gox, and made eventually Gox collapse.
    • Stable coins could be a source of instability. Researches also claim that stable coins can help to pump the price of bitcoin.
      • Apparently but not sure, Tether have been manipulating bitcoin price.
    • Wicked BUT market manipulation is kind of allowed! They are an essential party in this whole ecosystem, a major source of income for many people. Who said that bitcoin is a peer-to-peer democratic system? It has large corporate supporters.  
    • Several exchanges, primarily Chinese ones, faked trading volume. Not nice, but nobody says they are not allowed. A recent paper on crypto currrency exchanges.
    • Several exchanges have been permanently faking prices for several crypto coins, simply by disabling withdrawals while the market is still live. Coins are still traded but the price is fake, you can only sell and buy it inside their market. The connection with other markets which trade the same pair is deliberately disabled under false pretexts, and this is going on for months (and they completely ignore complaints by angry customers).
  • In general, bitcoin exchanges are weak links and naive customers think that their money is safe there, while in fact it isn’t. They all have a huge pile of deposits growing every month, more deposits than withdrawals. If so how do you know the money is still there? A typical scenario is that money will be missing for years, and most people will not notice (Karpeles had this problem).  It is crucial not to trust crypto currency exchanges. They will fail you. Instead we recommend LEDGER Nano S wallet and some multi-sig capable wallets.

Few more posts in this category.

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