Where there's a large amount of money, there's bound to be grift.
It's just human nature.
From Bernie Madoff to Centennial Technologies all the way back to Yazoo land fraud,
folks have been getting scammed out of their hard-earned money for a while now.
And crypto, of course, is no different.
In this video, we're going to take a look at the history of scams and schemes
and how they are still at play in crypto today.
Let's get it!
Welcome to BitBoy Crypto!
My name is Ben.
And my mission is to empower you to find financial freedom through crypto assets.
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It's fun to look back at some of the most audacious and brazen scams in history.
How on earth did they think they will get away with it?
In the words of the late Norm Macdonald,
you only hear about the drug deals that go bad.
There are plenty of other scams that we may never know about
and others that are staring us in the face and laughing.
I'm looking at you, Amway.
Learning about scams will help you see the warning signs
and not get sucked into the hype about a magical way to get rich quick.
You can sometimes get rich quickly,
but mostly, that's by chance,
like playing the lottery.
Well, the lottery is a scam too, but I digress.
So let's get started.
Price fixing.
One of the oldest scams in the book.
Price fixing works in any type of commerce, not just stock markets.
From the beginning of time,
alliances would be formed between business owners
to set the price of their goods or services above or below the fair market value
in order to increase their profits,
or, in the case of low prices, squeeze out a competitor.
The LIBOR scandal from 2011 was the biggest and most recent example
of how centralized banks got away with scamming other banks and governments for years.
LIBOR is an acronym for London Interbank Offered Rate
and is the average interest rate aggregated across several major worldwide banks.
The scandal came about when executives at Barclays and the Royal Bank of Scotland
started fixing and manipulating interest rates
that were higher or lower than their actual reported rates.
This touched everything from mortgages, student loans, derivatives and more worldwide.
Billions of dollars were skimmed off to dozens of bankers and insiders
who manipulated the LIBOR numbers.
They got so brazen that traders in New York will call Barclays and just ask for rates to be set.
Like this transcript from the investigation from a call with a trader.
"If you keep 6s month unchanged today,
I will do one humongous deal with you.
Like a 50,000-buck deal, whatever.
I need you to keep it as low as possible.
If you do that, I'll pay you, you know, $50,000, $100,000, whatever you want.
I'm a man of my word."
Crazy!
And somehow crypto is the predatory system?
Give me a break.
In the world of market manipulation,
a common term you'll hear now and again is a good old-fashioned pump-and-dump.
This is when the price of something goes up and up and up
to the point where people believe it'll go up forever.
Before you know it, a rug gets pulled out from under you,
and the price bottoms out faster than your butt hits the ground.
An early example of a pump-and-dump known as the South Sea Bubble
can be found in the history books all the way back in the early 1700s.
At the time, the Brits were in a war with Spain and France,
and they were broke.
Since they couldn't get any loans from the banks,
they turned to a man named John Blunt,
a rich man who was famously notorious for insider trading.
At last, the South Sea Company was created to take over Britain's national debt
in exchange for a 6% interest.
Those who the British government owed were given stocks of the company
instead of their money back.
Debt solved, right?
The government then gave the South Sea Company several monopolies,
including one on the slave trade,
but the problem was
the South Seas refers to South America which was colonized by Spain,
and considering they were at war with Spain,
that monopoly didn't exactly land them a hotel at Park Place.
There was a peace treaty in place,
but it didn't bode well for the South Sea Company
because there were unfavorable taxes stacked against them
and, it turns out, trading with your enemies isn't as fun as landing on free parking.
Eventually, the King of England, King George I, became the governor of the company,
which created confidence and a positive market sentiment.
Consequently, the prices started to rise, and this is where they got very greedy.
Long story short,
John Blunt took on more debt so they could pump out more shares.
The company even gave people who couldn't afford the stock loans,
which were backed by the stock, to buy the stock with.
Slippery slope.
John Blunt even "negotiated" with several, hiring politicians behind closed doors.
These behind-the-scenes negotiations caused the price of the stock to continue to grow exponentially.
And all this was the air inside of the first bubble in the stock market.
From January to August 1720,
the price of the stock went from around 100 pounds to more than a thousand.
By September, the bubble done burst, and it fell over 80% in one month.
By December, the price crashed back down to 124 pounds.
To top it all off,
the government and tens of thousands of traders crashed with it.
Even Sir Isaac Newton got wrecked.
I thought he was the guy that knew if something goes up,
it has to come back down.
Like, didn't he invent that?
I guess not.
As the story goes,
he bought into the stock and actually sold it weeks later for a 7,000-pound profit,
but then the price kept going up and up.
Unfortunately, the king of calculus himself got a good old-fashioned case of FOMO.
He bought back in at the top and suffered a 20,000-pound loss.
That's more than I need to lose.
His loss is equivalent to more than $3 million today.
It just goes to show being greedy never works out.
Even the smartest man to ever live can get wrecked.
Pump-and-dump schemes will always exist in some form or another.
As long as people are still greedy, some things will never change.
Just look at EthereumMax.
EMAX was a coin promoted by Kim Kardashian, Floyd Mayweather and Logan Paul
and was used to buy tickets for his fight against Floyd Mayweather last June.
He's definitely quick on its feet in the ring,
but he's not undefeated in a courtroom,
or some people may say a classroom.
Everyone involved in EthereumMax is now getting sued.
Time will tell if he's victorious in this latest bout.
A lawsuit was filed by a group of investors who are seeking monetary relief
for the damages done by the pump-and-dump.
They're attempting to sue the creators of EthereumMax,
as well as the aforementioned celebrities.
Yes, these celebrities didn't create the scheme,
and it remains to be seen if they knew what they were promoting,
but without their outreach,
pump-and-dump of this proportion wouldn't be possible,
so they do carry some responsibility.
Bear raiding, or the poop-and-scoop, is kind of the inverse of a pump-and-dump.
A manipulator wants in on an asset,
but the price is higher than he wants to pay,
so he and a few others will essentially start putting out a bunch of FUD for the asset
in the form of spreading negative rumors to coworkers, industry peers over lunch break,
calls and emails to news outlets, or even a few social media posts about the topic.
Alternatively, if they have enough capital,
they can put in a large amount of short positions that other traders will read and react to.
This has its roots to the Dutch East India Company
when Isaac Le Maire organized a bear raid of the Dutch East India Company
to buy more shares.
It worked!
And after a legal battle,
Le Maire settled out of court but still made a bundle off of the raid.
This type of behavior has permeated the traditional financial system since its inception,
and while it's considered illegal by the SEC,
it's a common practice done by nearly all major players.
Jim Cramer even went into detail about bear raids back in the early 2000s.
And the video is still on YouTube as of this recording.
We'll throw a link to it down below in the description.
Painting the tape.
Back in the day, orders will be transmitted via telegraphs
and printed on a ticker tape machine
that would literally make a huge racket when it will go off.
Today's "tape" is a lot less stressful but still packed with the same information.
The tale of the tape shows the volume of orders coming through for a particular asset.
Traders watch volume to stay on top of assets that might be getting ready to jump in price.
So for the manipulator,
the idea is to show a lot of volume for a stock,
incite a run on that stock,
essentially, pull a pump and dump, only using volume.
But pulling this off can only be done if you have enough money to show an increase in volume
and are a willing participant.
The key is to collude with one or more traders to trade back and forth to each other
in various amounts as fast as possible.
That spikes the volume,
but you're only trading the same money back and forth.
This can lead to flash pumps that can only be seen on short timeframe charts
like 30 minutes or less.
It's not too difficult to pull off
and has been done with access over the ages,
most notably, the Guinness share-trading fraud of the 1980s.
Essentially, the "Guinness Four" manipulated the London stock market
so they could boost Guinness shares
so they could take over a much larger Scottish beverage company.
This company was named Distillers.
They paid over $38 million to 11 different companies
to buy $300 million and get a stock to inflate the price.
They figured that if the price of their stock got high enough,
they could afford the $4 billion bid
and thereby acquire a company who was previously their competitor.
It all came to light when an American trader named Ivan Boesky got into trouble
and plea bargained his way out of it.
Apparently, he's never seen GoodFellas.
Never rat on your friends
and always keep your mouth shut.
Even since Ivan snitched,
this has gone down in history as one of the biggest stock market scandals.
You may more commonly hear this referred to today as wash trading.
All in all, the point is this.
When there's money on the table, someone will always try to steal it.
This is why you need to protect yourself by protecting your funds
and use common sense.
When you get a random DM or Telegram message about the next blue chip crypto,
and all they need is 0.5 of an ETH for you to 10X your money tomorrow,
get out of there.
Don't even click the links.
Use a cold storage hardware wallet.
Don't trade without a VPN.
And do your own homework.
Even if someone as famous as Kim K post about it,
ask around first.
As Eddie Bravo would say, look into it.
Never buy into anything based solely off of someone else's research or opinion.
It's important to approach this as intelligently as you can
because even someone as smart as Sir Isaac Newton
can catch a bad case of the FOMO.
That's all I got.
Be blessed.
BitBoy out.