How To Look For Crypto Exchange Red Flags in Bitcoin Space Before Making Your Next Investment

Cryptocurrency exchanges have been subjected to numerous hacking attacks since its inception and most of the times even if the lost funds are traced, the consumers never get back their funds as the attacked exchange goes bust and files for bankruptcy leaving the consumers in a state of limbo.

A recent report from statis group which primarily functions as the ICO advisory company, reveals that 80% of the total Initial Coin Offerings were scams. The year saw numerous ICOs being heftily conducted all across the globe generating a total of $11.9 billion in the capital. Out of the total amount generated $1.34 billion have been lost without any trace.

Some of the major fraudulent ICOs included Pincoin which got away with $660 million worth of digital assets while Arisebank took away $600 million. The only consolation part is that these fraudulent ICOs only got away with 11% of the total capital generated through ICOs.

The main reason for these scams to propel in the community can be attributed to the fact that a majority of the community does not have a basic understanding of the crypto space, and their only motive is to make quick money with 2017 price peak being their only reference. This makes it easier for the con artist and scammers to pray on the vulnerabilities of these ill-informed consumers.

The scammers are not just limited to ICOs since the number of ICOs being conducted have reduced significantly, and the main target has been exchanges which are mostly centralized and thus a better way of getting away with most of the money.

Although there is no certain way to determine whether an offered service is legit or a scam in the making, there are always a few red flags which the consumers can look for. We will mention certain inappropriate behavior by exchanges that the users can look for in order to avoid being scammed.

Red Flag 1: Faking The Trading Volume

Fake trading volumes have been a major problem for regulators to counter and it has been found that most of the exchanges which are at the top resort to showing buffed up trading volumes on their exchange in order to lure more customers. Trading volumes are inflated through a number of unethical methods, out of which wash trading is the top choice.

It has been estimated that almost 87 percent of the trading volumes on the top 25 crypto exchanges are fake. Wash trading is basically the most preferred choice where the exchange initiates several small transactions of similar value at once but does not complete all of them, but the initiation gives an illusion of increased liquidity. Exchanges generally use bots for the purpose also known as trading bots.

These exchanges then charge in upwards of $50,000 from the coin listers who are ready to do anything to get their assets listed. The exchange also uses the same fake numbers to get listed on websites like coinmarketcap which increases their visibility and userbase.

According to another report, only 2 platforms out of the top 25 are free from any kind of wash trading methods.

Red Flag 2: The Hack Attacks Which Are Stranger Than Fiction

It has been a trend where a fraudulent ICO generate a ton of money with the help of exchange and once the ICO generated funds are pocketed by the scammers they vanish in thin air without any trace. Soon after the exchange follows the suit and goes bankrupt after a mischievous hacking attack.

Take MapleChange for example which lost 912 BTC worth of asset and announced that due to a bug in the system, someone was able to cash out all the funds on the network, and they are filling for bankruptcy. They also said that they won't be able to refund any assets until the investigation gets over.

The exchange operators followed it with shutting down their social media platforms or any medium which would have allowed the investors and consumers to keep in touch and keep a track on the proceedings. As time progressed, it was found that the exchange operators were mostly vague in their approach and never paid much attention to the security of the exchange.

Red flag 3: Single Wallet For Most Of The Assets

The biggest red flag that an exchange might be vulnerable to hack attacks or may go bust is if the exchange is holding too much of the consumer's digital asset in one single wallet. These kinds of setup are generally done to manipulate the market or attract hackers to get away with everything and then part their way from the blame.

if there is no multi-sign capacity and exchange’s asset is under the control of one person, and then it’s time to take off as the service provider is definitely

going to do that if you miss the opportunity.

Red Flag 4: Too Good To Be True

One of the easiest ways for scammers of any domain is to offer services which are not practically possible. The same holds true in case of crypto scams if a service provider of the token offering is promising to make you a crypto millionaire overnight then stay away from it, as chances are it might definitely be a scam.

Often the Exchange or ICO offering lure big investors promising high yields. Another way is through a pyramid kind of scheme, where the investors are promised mind-boggling returns for every other investor they bring to the table.


As the saying goes, “Prevention is better than cure”, so one must gather all the knowledge and information that they can gain before making an investment. One must remember that nothing in this world comes for free and if something looks fishy about it, chances are it is a scam in making.

So, always refrain from getting lured to offers that do not add up, make sure you check the background and their portfolio before making those investments and finally keep the red flags in mind before betting your money on someone.

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