Most of you already heard about PlusToken. It is one of the most massive pyramid schemes in recent years. But many are mistaken in thinking that only investors lost money with this scam as the collapse of PlusToken also caused major ripples in the crypto market at large. In this article, we will talk about PlusToken in more detail and also consider the main features of a Ponzi or pyramid scheme.
Based in China, PlusToken was a cryptocurrency wallet offering high returns for purchasing PLUS cryptocurrency tokens associated with the wallet. Fraudsters claimed that these revenues would be generated by “exchange profits, mining revenues, and referral benefits.” Due to the attractiveness of the returns, several Chinese exchanges added support for PlusToken. Its ATH (All Times High) reached $350 thanks to “investments” from millions of people.
According to Chinese media, the fraudsters raised more than $3 billion in cryptocurrency. More than 200,000 BTC; 789,000 ETH; 26 million EOS, as well as an unknown number of smaller altcoins. By comparison, BitConnect’s capitalization at the peak was “just” $121 million.
Only eight cryptocurrencies have a market cap of more than 3 billion (above the red line). And only BTC and ETH have more capitalization (above the blue line).
In June, authorities arrested six people associated with PlusToken. Yet, the stolen funds continued to move through wallets with massive cashouts executed through OTC desks, working primarily on the Huobi platform, indicating that one or more scammers were still at large.
How PlusToken Influenced the Bitcoin Exchange Rate
A study conducted by CHAINalysis shows that, in the wake of the scam, Bitcoin’s price dropped by 20% due to the liquidation of PlusToken through trades against BTC.
For the analysis, experts correlated the price of bitcoin on Huobi with two indicators of Bitcoin-PlusToken trades:
1) The on-chain volumes of transfers from wallets controlled by PlusToken scammers to any of the 26 wallets of the identified OTC brokers on Huobi. (According to statistics, most of the stolen funds settled on Huobi)
2) Off-chain volumes related to the number of BTC per Tether traded on Huobi. Experts chose this indicator because PlusToken scammers regularly exchanged stolen BTC for USDT, possibly later converting it to fiat.
On the graph, we see the influence of PlusToken on the price of bitcoin on September 20, when fraudsters cashed out about $34 million in bitcoin. The market reacted by pushing down the price of BTC by 20%.
Since September 23, there has been a noticeable increase in the number of transactions in the BTC / USDT pair. Around the time of this increase, PlusToken wallets sent a large number of bitcoins to Huobi OTC brokers. Then, on September 24, the price of Bitcoin began to fall.
Signs of a Financial Pyramid
There are several common signs for all “pyramid scheme”:
- Promises of high profitability are the first thing that should alert you
- Guarantee of profitability — in the cryptocurrency market (as well as the stock market), there is practically no guaranteed profitability. The exception is staking, although while staking will increase the number of coins you own, it does not ensure you will make a profit in fiat.
- Aggressive advertising through online media. With the promise of high returns, all pyramid scams lure investors in with loud slogans and spending vast amounts of money promoting their brand
- Lack of any information on the financial position of the organization
- Payment of funds to new participants from funds contributed by other investors earlier
- There is no exact definition of the organization’s activities. Most often, the information indicated on the pyramid’s website is a “temptation.” For example, PlusToken claimed that it generates profits from the use of exchange rate differences, income from mining, and arbitrage. But, as usual, this is essentially the income from attracting users through referral schemes.
How to Protect Yourself from Scammers
- The simplest thing is to conduct a proper online search. Compare two search results:
Simply adding the word “scam” in a search query could have saved thousands of PlusToken investors millions of dollars.
2. Carefully study the information on the site. Promises of a high guaranteed income (which you can increase by attracting referrals), should alert you that most likely, you are dealing with a scam.
Here is a shortlist of pyramid schemes that will most likely collapse soon, depriving thousands of people of their funds: Cloudtoken, Wotoken, ICB Wallet, SCF Token, Fund token, AirBit Club.
Most importantly, do not volunteer your funds to scammers. Profits, even for early participants in a pyramid scheme, are risky and, as you can see, losses can be further magnified by the impact these scams could have on the overall crypto market.