It has been said and it remains true, you can make money in Cryptocurrency. How much money is not standard, is not likely to happen to more than one person the same way but it is possible. Being that there is still money to be made, with little to no regulation, it leaves potential Cryptocurrency investors open to exploitation and scams.
The recent collapse of Bitconnect is one example of this type of scam but there are others out there that have yet to reveal themselves. But what signs can investors look for to determine if they are investing their money in coins, ICOs, companies that are legitimate and if they are potentially investing in a Ponzi scheme?
Three red flags that come to mind:
No White Paper: Essentially, a White Paper is a mission statement that ICOs use to detail their coin, its uses, the roadmap for the coin or technology it is based on and any other information that potential investors may find useful.
Dubious claims: One of the primary claims made by Bitconnect and what cause critics to label it a Ponzi scheme was the claim that investors into Bitconnect who use their lending platform would be rewarded with up to 1% returns on their investments every day. The platform was funded by investors trading their Bitcoin for Bitconnect Coin and then lending the coin onto the platform. The returns were given in fiat currency instead of Bitcoin.
Social Media Pushing: One of the things that seem to happen in Cryptocurrency is a "coin of the day" mentality that circulates on Social Media. That's not to say that good information can't be gleaned from Twitter, YouTube or Facebook but you have to take everything with a grain of salt. Ask yourself, who are the people promoting a particular coin, what do they gain from telling you this information, look into the coin or platform they are promoting, does it fall under number 2 and are making dubious claims? Are the people promoting the coin promising you that you will get rich or make huge gains?
This is only the bare minimum of the red flags that investors need to be aware of, because Cryptocurrency is decentralized and not regulated (yet) there is little to no oversight on what claims an ICO can make, that a platform can offer to entice new investors, so investors need to do their own research and protect themselves.