Protect Your Wealth: Beware of These 5 Crypto Scams
Cryptocurrency is a volatile investment subject to dramatic price swings, but in some cases it can be highly profitable and complement a traditional securities portfolio, if the investor has the time frame and risk tolerance for a small amount of specualtion. Bitcoin, for example, has had a compound annual growth rate of about 100 percent since its inception and has produced positive returns in all but three years, including a 155.68 percent return in 2023. Many analysts and money managers expect further significant upside for Bitcoin, even from today’s approx.. $58,000 level. Other cryptos, including Solana, Raydium, and TrueFi have generated substantial returns in the last year. I am personally excited about Theta Network ( Crypto-Theta — $1.28 as of 9/15/24) as a speculation, and believe it offers potentially huge upside over the next 2–5 years or so.
However, prospective crypto investors should be wary of the promise of high returns and exercise due diligence before purchasing these digital assets, especially new altcoins. Many of the benefits of cryptocurrency, including decentralized transfers, make it a preferred source of fraud for criminals. Between January 1, 2021 and March 31, 2022, more than 46,000 people reported combined losses exceeding $1 billion in crypto to the Federal Trade Commission (FTC).
Here’s a look at some of the most common crypto scams and how to recognize them.
Investment Scams
Because it is relatively easy to create new coins or tokens, scammers often promote cryptos at low price points, hoping to entice investors with the promise of large and rapid gains via aggressive social media or email marketing. When traders purchase the coin, its price increases, at which point the fraudsters sell their holdings and cause a sharp decline in value. Known as a pump and dump scheme, this can occur within a few minutes.
“Typically, the new token is worth a few cents, or even fractions of a cent. But a little bit of momentum can drive it up the charts on sites like CoinMarketCap.com to make it look like the sky’s the limit on price appreciation,” explained Shane Cummings, director of technology and cybersecurity at Halbert Hargrove. “Given the speed at which new coins are created and marketed to investors on the Internet without regulation, some investors looking to earn a quick profit are drawn in by reports of triple-digit percentage gains in a digital asset over a short period of time and want to jump on the bandwagon.”
As a rule, you should avoid unsolicited communication from people you don’t know promising substantial returns with no risk.
Fake Crypto Exchanges
Cryptocurrency is either stored in an online wallet or external hard drive. Digital wallets can only be opened with a password or private key, so it’s important to keep that in a safe and secure place. Unfortunately, scammers can access these wallets by infecting the user’s computer with malware. Oftentimes, they promise significant savings when purchasing crypto at their crypto exchange and, in some cases, require new users to pay high fees to sign up.
These offers can sound too good to be true and they usually are. A lot of times, users are unable to withdraw their funds and have been defrauded of all of the crypto in their digital wallets. Stay clear of potential fake crypto exchange scams by only trading on reputable platforms like Coinbase, Crypto.com, or Gemini.
Phony Initial Coin Offerings
Similar to when companies make private shares available to investors via an initial public offering (IPO), start-up crypto businesses will issue initial coin offerings (ICOs) as a method of raising money. Scammers can take advantage of this, creating fraudulent ICO schemes that sometimes seem legitimate, with informative marketing materials and rented office space.
Criminals have stolen hundreds of millions of dollars from people in fraudulent ICO exit scams. In 2018, the Chinese firm Shenzhen Puyin Blockchain Group stole more than $60 million through three scam ICOs that were revealed when Reddit users discovered the firm’s alleged office was empty. Another firm, NVO, raised almost 3,000 Bitcoin in 2017 by promising to build a decentralized exchange before vanishing. The people behind the firm used fake identities and other elaborate means of deception.
Phishing
Phishing scams are those in which fraudsters acquire personal information, including credit card numbers and passwords, from another person via deceptive means. This is primarily done through text messages or email, with messages often containing a link that directs the recipient to a fake website designed to resemble a prominent business like Amazon or FedEx. The target then inputs their information on the fake website, providing the scammer with what they need to access their account.
In crypto phishing scams, criminals try to gain access to digital wallets by deceiving targets into providing their private key or password. They can then easily transfer the funds into another wallet. You can prevent phishing scams by ignoring unsolicited emails that prompt urgency or promise big rewards.
Pig Butchering
Pig butchering is a social engineering scam typically involving emotional manipulation. Perhaps best described as an elaborate phishing scheme, fraudsters use dating apps and other social media platforms to meet potential victims, establish trust, sometimes for weeks or months, and then propose lucrative investment opportunities in illegitimate cryptocurrencies. In order to string the victim along for as long as possible, they might also create fake websites that resemble crypto exchanges.
