Crypto scams have been on the rise as the popularity and price of Dogecoin (DOGE), Bitcoin (BTC), and Ethereum (ETH) continue to rise. Data compiled in August 2021 showed that Americans have lost over $90 million in cryptocurrency investment scams since October last year.
The Federal Trade Commission (FTC) data proves that it is a 1000% increase in the amount of crypto funds lost compared to the same period from last year. People aged between 20 and 39 were hit hardest, representing nearly 44% of the reported losses.
This FTC data also showed nearly 7,000 reports of crypto scams received by the watchdog agency since last fall, with a median loss of around $1,900. These losses are happening as Bitcoin keeps pulling the entire crypto sector up and more celebrities and high-net-worth individuals backing many other cryptos, including Dogecoin.
More Americans are trying to understand what crypto is all about with most of them investing some of their money in the nascent sector. One program analyst with the FTC, Emma Fletcher, said in an analysis of available data:
“All of this plays right into the hands of scammers. They blend into the scene with claims that can seem plausible because cryptocurrency is unknown territory for many people.”
Cryptocurrencies have dominated most of this year’s biggest business and financial headlines. Although they are believed to be highly unstable forms of money by most analysts and experts, Bitcoin spiked to reach new all-time highs near $65,000 before correcting sharply to bottom at $29,000. The flagship cryptocurrency is projected to move higher in the coming months as more institutions and companies start accepting it as a form of payment.
Visa, Starbucks, and Whole Foods are some of the notable retailers that accept bitcoin. Earlier this year, Tesla CEO Elon Musk said that his firm was accepting bitcoin as a method of payment for its electric vehicles. However, he backtracked on his commitment citing emissions and environmental impact posed by the bitcoin mining process.
Dogecoin and Ethereum also reached record highs earlier this year as celebrities like Kanye West, Paris Hilton, Snoop Dogg, and many others threw their backing behind cryptos of their liking. The total number of Bitcoin ATMs spread across the US offering access to crypto has increased significantly too.
But, unexpected sharp swings in bitcoin’s value have pushed traditional investors far away from the cryptocurrency industry. For instance, Dogecoin fell 36% in May after Elon Musk, while hosting “Saturday Night Live,” said that this digital currency is ‘a hustle.’ Musk later tweeted:
“Cryptocurrency is promising, but please invest with caution.”
Cryptocurrency is promising, but please invest with caution! https://t.co/A4kplcP8Vq
— Elon Musk (@elonmusk) May 7, 2021
He also said in an attached video clip that cryptocurrency should be considered as speculation until it matures significantly, gains more real-world use cases, and eliminates massive volatility.
Crypto scams have now been packaged in creative ways aiming to con people to invest in fraudulent projects. One popular scheme gives investment ‘tips’ online that redirect the users to phony websites. In another incident, the criminals pose as celebrities and trick the consumers into sending them crypto funds promising them that they will contribute and increase the users’ investments.
The fraudsters have even gone as far as posing like a government agency or a business that is associated with cryptos. Emma Fletcher wrote:
“For example, many people have told the FTC they loaded cash into Bitcoin ATM pay imposters claiming to be from the Social Security Administration. Others reported losing money to scammers posing as Coinbase, a well-known cryptocurrency exchange.”
Investors can spot a scam in case the involved organization or person reaches out to them guaranteeing massive investment returns if they send them cryptocurrency. If a person or group wants crypto payments only or alleges to have better ways of growing savings using crypto, FTC said that these are most likely to be scams. Fletcher concluded:
“To be clear, while investment scams top the list as the most lucrative way to obtain cryptocurrency, scammers will use whatever story works to get people to send crypto.”
The US SEC Advises On How To Spot Crypto Scams
The US Securities and Exchange Commission (SEC) suggests that crypto investors need to understand and evaluate all risks involved in the nascent sector. Also, the Commission advised users to look out for warning signs that point to possible crypto scams. In the latest alert, the SEC stated:
‘Fraudsters continue to exploit the rising popularity of digital assets to lure retail investors into scams, often leading to devastating losses.’
With crypto investments becoming more popular among American investors, the SEC issued fresh alerts against crypto scams. Digital assets include coins, tokens, and cryptocurrencies like those offered in the initial coin offerings (ICOs). SEC stated:
“Fraudsters continue to exploit the rising popularity of digital assets to lure retail investors into scams, often leading to devastating losses. Investors may be less skeptical of investment opportunities that involve something new or ‘cutting-edge,’ or may get caught up in the fear of missing out (FOMO).”
The regulator suggests that investors should strive to understand and evaluate the risks involved in the budding space and look out for warning signs that point to possible crypto scams. Here are the most common signs of scams:
- ‘Guaranteed’ high investment returns – the promises of huge investment returns with minimal or no risk involved are a major sign of underlying fraud. The criminals might post phony historical returns on their sites showing huge investment returns.
- Unregistered/unlicensed sellers – the unregistered and unlicensed sellers commit most of the frauds that target retail investors around the world. Investors need to check out the background of anyone offering investment opportunities in securities using search tools available on Investor.gov. License and registration status need to be checked as well before committing one’s investments.
- Too Good To Be True – if any investment ‘opportunity’ seems too good to be true, it probably is a trap. Please note that the possibility of huge returns involves high risks.
- Rapidly surging account values – previews of investment accounts that are rapidly increasing in value and offering massive returns are mostly fake. That is a tactic that criminals use to attract investors with the prospect of huge wealth.
- Fake Testimonials – never rely only on testimonials in making an investment decision. These criminals at times pay people to tout investments on social media or in a video. They pay actors who pose as ordinary people turned millionaires, social media influencers, and celebrities.
The SEC’s Division of Enforcement’s Retail Strategy Task Force (RSTF) and Office of Investor Education and Advocacy (OIEA) also advise that investors need to validate that the people and companies offering an investment in securities are registered and fully licensed before handing over money to them.
Before investing any money, authenticate that the people and companies that offer investments in securities are licensed using Investor.gov. The SEC also mentioned BitConnect’s $2-billion crypto scams that resulted in massive losses for the retail investors. The alert stated:
“The platform allegedly paid investor withdrawals out of incoming investor funds and did not trade investors’ Bitcoin consistent with its representations, leading the platform to collapse and investors to lose massive amounts of money.”
In the meantime, a selloff in cryptos widened on September 7, 2021, with bitcoin losing almost 10% while the smaller rival ether lost over 11%. BTC dropped from $52,000 to $43,000 but has since rebounded to trade around $47,000 currently.
Legal Defense And How To Avoid Crypto Scams
The cryptocurrency concept has taken the world by storm with Ethereum and Bitcoin leading the way. Bitcoin has recorded massive gains since its launch in 2009 such that the term has become synonymous with the term ‘cryptocurrency.’
Currently, crypto adoption seems to be penetrating the entire world with El Salvador recently recognizing bitcoin as legal tender. Cryptos have become popular since they are decentralized, speedy transactions, avoidance of banking fees, and high level of confidentiality when compared to traditional transaction models.
Blockchain technology has added smart contract functionalities that are projected to be revolutionary. Despite the allure that comes with cryptos, various core legal issues need to be understood to ensure that investors do not find themselves in crypto scams.
Cryptocurrencies Are Not Regulated Securities
Cryptos aim to decentralize the financial world. Thus, they are not considered conventional currencies that are issued by central banks with firm checks and balances integrated. But, crypto is supplied as a crypto stock on different exchanges and does not constitute ‘listed securities’.
These digital currencies are meant to offer most of the functions that fiat currencies provide. But, they are not insured or backed by any government or monetary authority. Some countries in Central America, led by El Salvador are recognizing bitcoin and other cryptos as legal tender.
Due Diligence Is Important
Criminals are striving relentlessly aiming to lure people to invest in crypto scams. Recently, there was major hype on buying in on ‘Dubai Crypto Currency’ that turned out to be a scam. The Dubai government reacted quickly and issued statements warning the public to be wary of the false information being circulated.
Also, the UAE central bank reaffirmed that it does not accept or acknowledge crypto in the UAE. The bank insisted that the only recognized legal tender remains to be the UAE Dirham. When looking for crypto investment opportunities, go for the exchanges that are regulated and recognized in your jurisdiction.
Check the licenses and regulatory approval from the Financial Services Regulatory Authority and other regulators to avoid falling prey to crypto scams.