While many in the cryptocurrency market are worried about regulation, the fact that it is unregulated makes it fertile ground for scammers.
Without a centralized regulatory body – something many cryptocurrency advocates don't want – the responsibility to avoid cheaters and scammers falls squarely on individuals. As a buyer, seller, or investor, you must know how to identify the red flags of a cryptocurrency scam.
Everyone has heard of fake ICOs, where shady individuals create entire cryptocurrency networks, rake in huge amounts of money, and then disappear overnight. But influencers can be a far more dangerous concern for the average cryptocurrency investor.
Michael Suppo is one such influencer who has been condemned by the cryptocurrency community for shilling specific coins. The result is his own personal enrichment at the cost of defrauding hundreds of inexperienced investors looking for guidance.
What is Shilling?
The term shilling comes from shill bidding, which is a tactic long used by auctioneers to inflate bidding prices. The idea is simple, and when combined with the anonymity the Internet provides, it is highly effective
In a traditional auction, a shill bidder is an ally of the auctioneer who makes a bid with the sole intention of raising the price of the auctioned item for the eventual buyer. It is fraud, punishable by prison and punitive damages of twice the loss of any victim or twice the gain to the defendant.
Nevertheless, shill bidding is a widespread form of financial corruption. In the world of fine art, art collectors may secretly shill bid in order to raise the value of an artist's work with no intention to buy. If the shill bidder already several paintings by the artist in particular, then the shill bid will increase the value of the artist's entire collection – leaving the auction's real winner to pay the difference.
In the world of online auctions, the shill bidding process is far simpler. As an auctioneer, all you have to do is create a fake account and bid for your own items. However, reputable platforms like eBay regularly catch and punish shill bidders.
How Cryptocurrency Shilling Works
For cryptocurrency, shilling operates in the same way. Someone makes a high-profile purchase of a particular cryptocurrency and then convinces others to purchase as well, increasing the coin's value. As the value artificially increases, the original shill unloads their large supply at the current, inflated market rate.
The coin usually collapses afterwards as inexperienced investors scramble to sell their now-toxic assets. This is called a pump and dump.
While mature cryptocurrencies are largely immune to this type of fraudulent behavior, small ICOs attempting to achieve first-phase funding are extremely vulnerable. The pump and dump process does not only consume investors' assets, but destroys the credibility of the often-innocent ICO founders who were victimized.
The key to operating a cryptocurrency shill operation is influence. If a regular cryptocurrency investor purchases a huge amount of a brand-new, relatively unknown coin, it has no cohesive market effect. If a cryptocurrency influencer makes a large purchase and tells his following to do the same, then the price can artificially inflate, creating the perfect conditions for pump and dump fraud.
What We Can Learn from Michael Suppo
Michael Suppo, also known by his YouTube handle, "Suppoman" is an influencer whose YouTube channel primarily covers upcoming cryptocurrency trends. This puts him in a position of trust among his 100,000+ subscribers, who often follow his advice concerning new ICOs worth investing in.
Suppo's case is not a unique one, but the depth of his fraud makes it an excellent example. For $10, Suppo would sell information to viewers – his personal best-choice investment pick for the current cryptocurrency market – and let users participate in a Facebook group where he organizes pump and dump scams.
Suppo also operates a Udemy channel where he teaches cryptocurrency newcomers how to approach the market. As with the rest of his illicit career, the focus is not teaching investors how to identify reputable cryptocurrencies. The courses' focus is identifying which cryptocurrencies Michael Suppo has already invested in.
Newcomers to cryptocurrency should be on the lookout for scam artists. Any of the following red flags should advise you to steer clear:
Look Out for Conflicts of Interest. The fact that Suppo himself invests in the cryptocurrencies he covers represents a clear conflict of interest. If Suppo was a Wall Street broker, he'd be staring down the barrel of a lawsuit with the SEC.
Unexplained Value Fluctuations. Many cryptocurrency investors operate on rumors and hearsay. However, even a rumor purports to explain something. Approach with caution any coin whose value is going up without news, development, or activity to explain it.
Influencers Who Don't Disclose. Ultimately, you have a right to feel suspicious about anyone who asks for to have blind faith in them. There is a big difference between an influencer who lets viewers know where the money comes from and one that doesn't disclose holdings and earnings.
Never Underestimate the Value of Research
Since there is no regulation in the cryptocurrency market, you are truly the only person you can completely trust. Keep an eye out for other people's incentives, and remain vigilant about how their interests influence the decisions they make.
In the end, your money represents your choice – don't give it up so easily, no matter how many followers an influencer may have. Do your research, qualify your sources, and perform due diligence.
You will undoubtedly find a wealth of information on any cryptocurrency that interests you on the Internet. But you have to qualify that information based on where it's coming from. Research any coin you feel tempted to invest in and be sure your choice to do so is uninfluenced by unconvincing arguments made by people looking to earn a quick buck off of others.
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