Cryptocurrency Arbitrage scams targeted at Nigerians is rising fast.
Cryptocurrency arbitrage scams are currently rising in Nigeria [and other parts of the world]. Why is this so? The reason is simple: cryptocurrency arbitrage – the practice of buying cryptocurrency assets at a lower price from one Exchange, and then selling the crypto assets at a higher price on another Exchange for profit gained from the price difference. In Nigeria, Nigerians have a very fast rate of cryptocurrency adoption and has one of the highest rates of cryptocurrency adoption in the world, so this make crypto arbitrage trading a very attractive venture for most people in the Space. However, the high rate of adoption, the heightened interest in arbitrage services, and the need to increase profits due to triple-digit inflation in Nigeria has made crpto arbitrage scam a ripe breeding ground to be harvested by criminal actors in the crypto space.
From numerous fraudulent investment platforms [with Telegram and YouTube serving as unwitting breeding grounds for “trainers”], to Ponzi schemes disguised as arbitrage opportunities, scammers have doubled down on people’s need for quick profits to run criminal schemes against unsuspecting victims. We explore how these schemes operate and give tips on how Nigerians can protect themselves from falling prey to them.
Increasing Cases of Cryptocurrency arbitrage scams in Nigeria: a real-life experience
When we heard of crypto arbitrage and the attendant scams criminals run to exploit individuals interested in making quick profits from arbitrage trading, we decided to run an investigation. We had $100 USDT (one hundred United States of America Dollar Tether) set aside to run an experiment. For confidentiality purposes we will not reveal real names of users or platforms. So, we got on YouTube and searched for “Cryptocurrency Arbitrage in Nigeria” and I watched numerous videos on the topic. I noted that a record number of these video tutorials came from faceless YouTube accounts, the tutorials comprising mostly of cut-edited screen grabs from mobile phones to give a walkthrough of how arbitrage trading works.
Finally, I chose one YouTube account and doubled down on the lessons: you send $100USDT to your Trust Wallet, visit an (obscure, absolutely unknown) Exchange platform, where you select a coin to buy at a price usually at least 30% cheaper than it would be on more recognized Exchanges like Binance, Bybit, OKX, Coinbase Exchange, et cetera; then select the amount you’d want to buy (with minimum buy-in at $100 which was why we set aside $100USDT for this experiment), enter your own coin wallet address (into which they’ll release your coins to you) and a USDT wallet account will appear for payment. After that you’d be redirected to your Trust Wallet, and you’d send USDT to the said Wallet. Thereafter, upon confirmation, you’d be taken back to the website, refresh the page, and then go to your Exchange account (whether on Binance, Bybit, etc) to refresh the page and await the arrival of your coins. Then you can sell at a “higher” price and earn your profit. That is essentially how the arbitrage system works, and how they taught it, but alas, it gets interesting.
Like we pointed out earlier, the video – at least the one I doubled down on – was a cut-edited screen grab of a mobile phone screen. Certain parts of the process were cut out, so there was really no way to confirm if indeed an honest value exchange was made. It wasn’t.
We followed the necessary steps, got debited on our Trust Wallet, then waited to be “redirected” from our Trust Wallet back to the Exchange, and then…nothing. Our $100USDT (valued at approx. ₦157,100 at the time of this article close to a year after the incident) was gone. Revisiting the site and refreshing the pages yielded nothing. Visiting Binance where my chosen Wallet was domiciled to receive the coins, yielded nothing as well.
We immediately took the necessary steps and notified the domain registrar that hosted the domain name of the “Exchange” and got the domain name yanked off the Internet. We thereafter reported and tried to get the YouTube account taken down, but YouTube wouldn’t touch the account.
It was a lesson well learned, for research purposes.
Why is Nigeria a hotspot for Cryptocurrency Arbitrage scams?
Nigeria became a hot bed for crypto arbitrage scams due to several reasons:
- High Crypto adoption rate: Nigerians arguably has one of the highest rates of crypto adoption in the whole world. Where a hugely youthful population has adopted one of the world’s most volatile financial models, it’s easier for dark-web actors to latch on to that and devise elaborate (and not-so-elaborate) scams targeted at them.
- Regulatory uncertainties: Nigeria lacks a clear regulatory framework for cryptocurrency operations and the holding, managing and sale of digital assets (which includes cryptocurrency). The Securities and Exchange Commission (“the SEC”) takes one regulatory position; the Central Bank of Nigeria (“the CenBank” or “the CBN”) takes a divergent, completely contradictory position. Accounts have been frozen for cryptocurrency transactions and monetary assets forfeited; Binance got kicked out of Nigeria following a huge scandal involving its executives and Nigerian regulators…and the list goes on and on. With such regulatory uncertainties bedeviling the cryptocurrency space, it is little wonder that cryptocurrency arbitrage scams are on the rise, as many victims do not step up and voice out about these scams.
- Financial hardship: From the year 2015, Nigeria went into a downward economic spiral which it is yet to recover from till date. This financial hardship many citizens face – wherein several live way below the poverty line – has made many Nigerians desperate to increase their income, hedge against price inflation and currency devaluation, and they see cryptocurrency arbitrage as one way to do these easily. Unfortunately, dark-web actors are also watching and are aware of the high levels of desperation in Nigeria, hence the ease with which they operate. And not only that, it is difficult for already financially distressed individuals to report incidences of crypto scams to the Authorities for investigation and prosecution of offenders.
How Cryptocurrency Arbitrage scams operate
Fake Exchanges & Wallets
Scammers create fake (and very obscure) Exchanges where you deposit funds and you’re unable to access, withdraw or trade with them. The money vanishes and only remains as binaries and digits on your profile which you cannot use, access or withdraw; essentially, you have been scammed. Alternatively, you could be dealing with Exchanges where you are redirected to external wallets (like in the scenario in this article) to send digital currency to a designated wallet, and then that’s the end of your “trading”. Your money is gone.
Social Media Scams
Social media platforms have unwittingly become “accomplices” in cryptocurrency scams, including cryptocurrency arbitrage scams. A lot of (scammed) users attest that they first read of, or hear about crypto scams on social media platforms like Facebook, Instagram, and even YouTube (in the form of how-to tutorial videos uploaded by faceless channel owners on the platform). (Approved) Ads appear on Instagram peddling cryptocurrency classes; following the trail, you are funneled into Telegram groups where only admins can post content, and the only content they post is usually screenshots of “testimonials from satisfied users of our program”; from there you are funneled into a YouTube “tutorial” video where they “teach arbitrage”, with a link in the video description leading you to a fake Exchange. From there, your money vanishes into the Ether. Even when the fake Exchanges are taken down by the domain name registrars, they register new domain names and replace the links in the video descriptions with the new links. It is a vicious cycle that goes on and on.
How to avoid cryptocurrency arbitrage scams
- If the promises sound unrealistic and appears too good to be true, then it probably is.
- Verify legitimacy of whatever domain names you are dealing with; most times, scam sites run for only very short periods of time before they are yanked off the internet. A reputable Exchange will probably have been around long enough.
- Use reputable Exchanges and avoid obscure, unknown Exchanges. If they were legitimate, people would probably know about them.
Conclusion
The continued rise of cryptocurrency scams in Nigeria highlights the urgent need for crypto users and traders to increase their awareness; it also calls for cohesive regulatory oversight in the sector, and increased due diligence from investors. While we agree that legitimate arbitrage opportunities do exist, unscrupulous scammers have weaponized the opportunities in cryptocurrency and in the arbitrage concept to lure unsuspecting victims with promises on unrealistic profits. Unclear regulations (at least in Nigeria) and the welcome anonymity of cryptocurrency transactions make it harder to recover lost funds with expending significantly more funds in the process.
To protect themselves, Nigerians must remain skeptical of investment opportunities and schemes that promise high margins, obscure Exchanges no one has heard of, and stringently verify platforms before they commit their funds. We also advise they stick to reputable Exchanges only in order not to fall victim to scams they might have to spend huge sums of money to report and prosecute. Ultimately, knowledge is the best defense against fraud; Nigerians must equip themselves with proper information to safeguard against fraud and scams.
For more information about the above article, or for general inquiries regarding cryptocurrency regulations and issues in Nigeria, please contact our Kingsley Ani or reach out to us at contact@kabbizlegal.com
This article is from the Cryptocurrency and Blockchain Law practice group aimed at the Technology sector at Kabbiz Legal & Advisory.
About the Author
