Arbitrage With High Returns? Be Careful With Your Funds!

2023-02-03 10:05:11

When using crypto products such as wallets and exchanges, protecting the security of your assets is the No.1 priority. In “CoinEx Wallet Security Tips”, we will share some basic crypto know-how such as common scams, how to use crypto products safely, and blockchain security mechanisms from multiple perspectives to help you fully understand asset security and adopt enhanced protection measures.

 

Arbitrage, a term from the financial industry, refers to the practice of taking advantage of a gap in prices in two or more markets. It often occurs in investment markets such as foreign exchange, stock index, and commodity futures. In the crypto space, as crypto exchanges and assets are extremely diverse, arbitrage has also become a common strategy for making crypto investments.

 

Back in the early days when there were only a few crypto investors, price gaps were common between exchanges. For instance, if spot BTC is sold at $20,000 on Exchange A and $20,100 on Exchange B, investors could buy BTC on Exchange A and sell it on Exchange B, earning profits from the $100 price spread.

 

Over the years, as the user base of cryptocurrency expands, the price gap between exchanges has narrowed, and cryptos are quoted at virtually the same prices on different exchanges. As crypto arbitrage now requires strong price capture capacity and expensive costs, retail investors could hardly find any arbitrage opportunity, while professional investment institutions are still earning arbitrage profits by leveraging the tiny differences in crypto prices and exchange rates. Despite that, in today’s market, many scammers are trying to hoax retail investors with arbitrage scams.

 

Arbitrage With High Returns: Fake Cryptos

In recent years, many scammers would invite crypto investors to join “XXX arbitrage groups” on Telegram. In such groups, administrators would send “arbitrage tutorials”, which “helped” members of the group earn handsome profits that are faked by the scammers. For instance, fake HT fraud is a typical type of arbitrage scam, and Huobi even issued an official announcement to notify users of the scam.

 

 

Here is how a fake HT fraud would go: The scammer would first ask you to transfer your ETH to a designated address and promise to send you HT worth 115% of the ETH in return. Initially, the scammer would send back real HT to convince you that it is a great arbitrage opportunity with high returns and zero risks. As you transfer more ETH to the address, you’ll notice that the subsequent HT coins being sent back are fake, worthless cryptos named “HT”.

 

 

Arbitrage With High Returns: Unable to Withdraw

In addition to fake cryptos, scammers may also bait users with fake exchanges. To be more specific, the scammers would first set up a small crypto exchange to intentionally raise the price of BTC sold on the exchange, attempting users to deposit their BTC to the exchange and sell it for arbitrage profits. For example, when the market price of BTC stands at $20,000, the scammers would promise great arbitrage profits; they’d say that BTC is now quoted at $22,000 on the exchange because users bought huge amounts of BTC on the platform due to a fiat currency crisis.

 

Tempted by the promise of huge profits, some users would only deposit a small amount of crypto into the exchange and then sell them as soon as possible. Once the coins are sold, convinced that they have found a great arbitrage opportunity with zero risks, the users would become less prudent and start to deposit more cryptos. Soon afterward, users would find that they can no longer make any withdrawals, eventually losing their deposits to the scammers.

 

Using fake coins or exchanges, scammers bait users with high returns and steal funds from them when users are lured in. Therefore, in the face of high-return investment with unknown risks, we should remain rational to protect our assets. Moreover, investors should also choose well-established exchanges and refer to official SNS information. As they say, there ain’t no such thing as a free lunch.

 

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