Don’t fall for a get rich quick scheme

There’s a great deal of hype around the cryptocurrencies, principally the promise of enormous financial gain for virtually no effort. Just sign up, sit back, and watch the money come in.

Sounds too good to be true, doesn’t it? But here’s the thing: the sound of something being too good to be true is often no more than a warning bell.

Cryptocurrencies – and there are more than 1,500 of them – have been trending, with the potential returns even demonstrated on mainstream TV, as presenters have dipped into their pockets and opened accounts.

But before putting up your hard-earned money, ask yourself where the profits come from. How can cryptocurrencies generate huge returns without any obvious business being done?

Certainly, the results would appear to show that phenomenal returns can be generated with ease. A quick internet search will reveal claims of that £250 can be converted into £3,354 in a day; and examples like the woman in Rome investing €500 to generate a return of more than €9,000 in 24 hours.

Wow. But hang on. These same web sites (promoting cryptocurrency trading, remember) say that not only is past performance not a guarantee of or prediction of future performance, but they also warn that cryptocurrencies entail high volatility and ‘may result in significant losses over a short period of time’. They also warn that as many as 80% of traders lose. And those losses can be huge, including ‘your entire balance’.

So what’s going on here?

Where is the successful investors’ money coming from? Let’s try to answer those questions, but first, and before we go any further, let’s make it clear that we are making no claims about the cryptocurrency trade, but rather drawing attention to historical fact, and a man called Charles Ponzi.

Ponzi saw himself as a legitimate businessman, taking investors’ money and trading in US postal coupons. Except that he wasn’t actually trading. This was exposed when a journalist asked the US Postal Service how it was coping with this massive upturn in business, only to be told that it wasn’t. There was no upturn in business. Ponzi was paying existing investors with money entrusted to him by newer ones. A lot of people lost a lot of money. Ponzi eventually went to jail as a result.

So how do you spot a cryptocurrency scam?

The Which? consumer organisation offer a series of helpful pointers

If you don’t understand cryptocurrencies, don’t part with any money

If it’s an ICO, or initial coin offering, and doesn’t explain how it will work, or the numbers don’t add up, don’t part with any money

If it sounds too good to be true, it probably is. Don’t part with any money

Have you been contacted out of the blue? Be especially wary, and don’t part with any money

If you’re being threatened, or blackmailed, change your passwords, and don’t part with money

Don’t be pushed into something you’re not entirely comfortable with, and don’t invest money you can’t afford to lose

See the theme that’s developed here? There are lots of unscrupulous people out there, and simple steps will ensure you don’t fall prey to them.

Picture: Photodynamx | Dreamstime

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