Dear uninformed readers,

We are all delighted/distraught/dismayed/disillusioned/disintegrated/disembowelled/distressed/destroyed by the recent spike in bitcoin. I myself made some bold claims about it hitting $100k this year and will continue to stand by it (unless I’m proven wrong…). Anyways, the topic today isn’t regarding bitcoin, or even the other smaller yet still viable and heavily traded cryptocurrencies, I’m here to talk about ICO’s and the far smaller and less traded cryptos and how they scam investors into their ‘concepts’.

From even the most basic understanding of finance, we know that if something can make money, peole will rush into it. Scams and Ponzi schemes popping up all over the world despite laws and heavy punishments against it is proof enough that as long as it earns enough money, fuck the consequences. It also proves that there are plenty of people, both sophisticated and normal, wealthy and poor, smart and dumb, across the entire spectrum of the species we call homo sapiens, who are willing to invest in something they believe in. This believe can come from a plethora of reasons, can be ignorance, can be trust (in a friend or family member), can be boredom, but all of these reasons are driven by the underlying greed that drives forth the advancement of humanity. I’m not saying that greed is bad. As a student of finance, and somewhat advocate of a free market, I believe that greed is good. It will lead us to waking up earlier, to loving those around us, to making the world a better place. But I also have to concede that it does come with its issues. Losing money and missing out on longer term gains being one of them.

The reason why people lose sight when greed takes over is the basic premise of behavioural finance. Why do we buy lottery tickets? Why do we go gamble at casinos? Why do we do anything with a negative expected value? How do we value infinite expected value games? All these ideas come into play when we look at the deep dark corners of the crypto market.

Let’s face it, as much as we say buying bitcoins is to stick it to man, it is still mainly used by that seedy neighbour whose place always has that stink of weed and bad hygiene. Of course, I’m generalising but take a stroll around the dark web and you’ll see that everything from drugs, to arms, to ‘jobs’ are all transacted via bitcoin nowadays. The decentralised settlement system that cryptos pushes as a forefront feature is why they are the payment system of choice. However, there are issues when using them as currency. The first being, circulation. They simply don’t circulate enough for people to use them on an every day basis. The second is the reason why they don’t circulate. Because they don’t have a stable value! If the currency is pegged to say the US dollar (USDT for example), then it is limited in the amount that they can circulate in the market. This can cause a problem when the growth stage kicks in (see why the US unpegged their currency to precious metals). If it’s unpegged, then all hell breaks lose and we have things like bitcoin which gyrates 20% overnight. Furthermore, for most people who releases ICOs to the public, they want to make money! I know it’s hard to believe that they don’t do it out of charity but it’s true. They’re in it for the money. It’s a lot harder to make money when you have to hedge all the coins according to a peg.

So that brings us to all these ‘concept’ cyrptos. You know, those ‘coins’ that exist because they are used to facilitate paying for electricity, overseas transactions, trading options, ownership of a company, paying for porn, paying for roast chicken (yes this one is real, a friend of mine is making it as I write this) and such and such and such… There are simply too many to mention. Anything that you’ve heard of is probably leagues beyond this (including things like Dogecoin. Yes, Dogecoin is actually quite big…).

We start with the concept. It is usually some bullshit made up to give credibility to the venture and make it sound like it’s much bigger than it is, a scam. It could be based on a per MWh usage of renewable energy generated by some African country that employs thousands of underprivileged children working to clean the solar panels. Wait, no, that’d be child labour. Umm… let’s say it generates thousands of jobs and literally brought light to hundred of smaller villages that would otherwise still be eating casava leaves grinded by stone. Now, buying this crypto not only will make you rich, it will also make you a better person but also very wealthy because African nations need MOAR POWAH!!!

Next we come to marketing. This concept must be backed by some white guy who won multiple philanthropy awards and is extremely rich but also low key (which is why you won’t ever find him on say, the Forbes list). He’s doing this and coming out into the limelight for the world! He’s doing it and sacrificing his privacy that he values for the future! Now, he’s generally backed by a board of diversified people both men and women, with a few LGBTQ and/or disabled. It’s a big family! It’s a RICH family, who even though could totally just invest in the renewable energy project themselves and profit greatly while doing the world a favour decides that they want to share the profit with all the investors who believes in them. Theyw ill team up with some ‘executive’ at a major bank (generally speaking a fraud who may or may not have even worked in any bank). They’re too poor to do proper roadshows so of course they will simply be sending out mass emails from some seeds list they bought filled with information of people who were too cheap to pay for porn, or expected that some naughty but not too good looking middle aged women were out and about in their neighbourhood looking for a good time. Of course, they will also hit people up on social media and join Discord channels or reddit communities and lure them into their own chat group.

Now that they have a bunch of lonely, vulnerable guys who probably joined the chat because the person inviting them really ‘connected’ and has ‘huge boobs’, they will be lured into a very ‘prestigious’ chat group that they only managed to get in because their ‘friend/relatively/anybody who is close but definitely not a partner because godamnit they are still single because they’re the soulmate of every guy they lured in there’ is a professional investor who has connections in all the right places and can get access to this crypto before it’s released to the public. Now, all the marketing in the previous step will be pushed down the throats of these people like… ok, no more similes. But my point should be crystal clear now.

Payment. Of course you’ll need to pay them, but they only accept bitcoin/USDT/some kind of crypto that is well known and liquid and NOT any kind of bank transactions that can be traced. The money will be transferred via a ‘third party platform’. Their coin can ONLY be found there. And the pricing and supply and demand are more opaque than the lead linings outside a nuclear reactor. So now that you invested, the money starts to grow because all the prices are manipulated on the back end of their platform. Other people in chat sees you flaunting your enormous e-Penis from your recent gains (that you definitely cannot withdraw because withdraws are only possible once the ICO is completed) and all the ‘pretty girls’ in the group stroking your… ego, and will soon follow. Of course, the group gets bigger as people start to call more friends and family to join in on this once in a lifetime opportunity.

Scammers who are brave may even have offline meetings to booster confidence in their project. A quick lunch event with some people in the group will go a long way to validate their venture. Finally, they delete the group and run for it leaving everyone there distressed and unable to get back any of their investments.

The precise method they use will obviously differ. I am only going through what I have seen personally and what people around me have gone through. So to sum up, the economic value of shitty cryptos is for scammers to rob you of your money. that definitely doesn’t cover all of them, but those that remains are statistically insignificant at 0.1% level using the t-test

Best regards,

The uninformed trader