No, no, no, it's important to say this three times.
Next, let’s talk about the historical conditions of small exchanges, their profit models, methods of deception, and other situations.
Let me clarify first, I only recommend Binance and OKEx for domestic exchanges, and Coinbase for foreign exchanges. These are top exchanges, no need to consider others!
Historical Situation:
In 2017, the largest exchange in the country ran away, it seems called Bitcoin China. In 2021, to my knowledge, about seven or eight exchanges ran away, including Exchange A, Hufeng, Zhongbi, and Biwin, etc.
There are more than 20,000 exchanges in the crypto space, excluding decentralized exchanges in wallets. However, the audience for cryptocurrencies is limited, leading to a situation of many monks and little porridge!
Moreover, the head effect is significant; for example, the top two exchanges in South Korea account for 96% of the country's cryptocurrency trading, while the remaining exchanges share the other 4%.
Top exchanges can make money from user transaction fees, while the rest of the exchanges lack enough users and will starve relying on fees. Staff, servers, office space, advertising, and promotional costs are all expenses, so they must find alternative ways to make money!
Profit model:
1. Charge fees for listing new coins. As long as there's a listing fee, even garbage coins can go on the exchange. Previously, Exchange A was exposed for charging a listing fee of 32 BTC.
2. Shorting garbage coins. Some newly listed garbage coins will lead certain users who hold these coins to withdraw them from the blockchain to the exchange for easier trading.
Okay, at this point, it should be clear. When users withdraw coins from the exchange, the coins displayed as numbers on the exchange's smart contract are actually in the exchange's wallet. A fitting explanation is that your money in the bank can be checked via your mobile phone for your account balance, but in reality, your money is being used by the bank for investment management. Banks are backed by the state, so security issues are minimal.
However, this cannot happen in the crypto space because of anonymity and decentralization. But small exchanges must operate this way, leaving 10%-20% to handle daily user withdrawals, and directly withdrawing the rest to the blockchain to dump. This triggers panic selling, causing retail investors to cut their losses, further driving down coin prices. Once the price has dipped sufficiently, they buy back to return to customers. They use customers' coins to dump on customers—fantastic!
A personal true experience: I once bought BabyDoge on the primary market and listed it on the MEXC exchange. As a result, the hot wallet marked on the blockchain from MEXC withdrew coins to sell in the primary pool. Consequently, the community collectively attempted to withdraw coins, but MEXC claimed there was an issue with the token and delisted it. The compensation in USD was only a temporary resolution.
3. Contract slaughtering, with leverage exceeding 125 times, are 100% slaughterhouses. Normally, contracts are traded against each other; one user goes long, another goes short, and when the price rises, the long position earns money from the short position.
However, in a small exchange, your counterpart is the exchange itself. If you make a small profit, they allow you to withdraw; if you earn a lot, they directly lock your account ID for being suspicious. (At this point, your lost money is split 70/30 between the signal teacher and the exchange.) This is the worst-case scenario!
4. Insufficient depth intentionally causes liquidity shortages, resulting in extreme price spikes that trigger liquidations. In the second half of 2021, Exchange A suddenly spiked to 700 USD, while other exchanges were still at 4000 USD.
At this point, some smart person might say, 'If I shorted and set a take-profit order, wouldn’t that have worked?' Sorry, but there’s insufficient depth, meaning there’s no counterpart for trading, and they can close your position early, leading to heavy losses; as for the long position holders, they directly face liquidation and lose everything!
Another point is that they will charge a liquidation fee in advance. For example, if you long at 4000 and get liquidated, they will directly liquidate you at 4040.
5. This is very common; when you mention a coin from an exchange, they take it to invest and manage it for you. FTX exchange's SBF went bankrupt because he used customers' coins to invest with leverage!
I used to know the boss of a small exchange before he ran away with users' coins. He posted a message saying, 'I cleaned up the house, and I'm really exhausted. I packed two big boxes of jewelry for my wife,' along with a photo. In the corner of the screenshot, I also saw a large box of property certificates. (You can think of this box as a large suitcase). All of this was obtained from users' coins.
Both Binance and OKEx wallets will have formulas!
Methods of Deception:
KOLs who provide signals earn money regardless of market conditions, earning thousands to tens of thousands of USD each time. Because anyone can apply for a virtual trading account, the small exchanges can’t be distinguished between genuine and fake. They might think it’s real trading; others open long and short positions at the same time, and one of them always profits, leading people to believe it.
Some teachers provide you with buy and sell points in advance. Sometimes retail investors who make money think the teacher is amazing! Perhaps he splits the people into two groups: one group says the price will rise, and the other group says it will fall; eventually, one of them will be right. If this is repeated a few times, someone will definitely keep making money, completely believing the teacher.
Some of these are teacher's chat groups, where it’s likely that most of them are shills, and only a few real people are actually participating.
When others are making money, it’s because the market is good; who wouldn’t do the same? When the market is bad, it becomes clear which teachers are swimming naked.
This is all about inducements; the financial market does not create wealth, it only redistributes wealth. If someone makes money, someone else must lose it. In real life, even fathers and relatives end up in court over money, let alone strangers!
Another point regarding transaction fees: for short-term contracts, frequent trading will erode your principal. Right? But if you’ve registered with Binance, what can you do? You can only come back to my exchange for high rebates!
Finally, there are various registration activities, airdrops, or spot trading, contract trading, and various rewards offered by the exchanges!
To add:
The investment amount in exchanges can vary widely, starting from as low as 100,000 RMB. You set up a server, create a website, and re-skin it from other exchanges. Then you call market makers to add liquidity and invite signal teachers to recruit people. At most, you go to related third-party applications in the crypto circle to advertise and spend money to boost the exchange's ranking. The A exchange that previously ran away was advertising on Feixiaohao while ranking fifth in the crypto space, also promoted by Jinse Finance.
Exchanges run away in a bear market because they originally had very few users, and even fewer during a bear market. Websites, servers, venues, advertising, and labor all cost money, so they simply run away. When the bull market warms up, they come back with a new guise!
The most basic level is to give you a fake trading app, which is just a scam.
