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FP MarketsCrypto Scam Types
Written by Steven Hatzakis
Edited by John Bringans
Fact-checked by Joey Shadeck
Cryptocurrency, often referred to as crypto, is a type of decentralized digital asset (or, currency) that is verified, recorded, and secured by cryptography. Due in part to the irreversible nature of crypto transactions, the last decade has seen an explosion of crypto scams. According to the FBI's IC3 division, cryptocurrency investment fraud complaints amounted to $2.57 billion in 2022.
I’ve been researching and writing about cryptocurrency and blockchain technology for over a decade, and I’ve made several thousand crypto trades. I believe strongly in the importance of cybersecurity best practices, and I wrote this educational series to help everyday traders protect themselves from financial fraud and crypto scams.
Types of Common Crypto Scams
Clever crypto scammers can mismanage funds, commit fraud, steal money, and disappear – leaving holders of crypto with no way of recovering their money. Crypto scams might be lurking in comments on social media posts, hiding in forums and message boards, imitating high-profile investors, or masquerading as legitimate businesses.
In my ten years of covering the crypto space, I’ve observed countless crypto scams. I’ve detailed below the common crypto scams that are the biggest threat to everyday crypto traders.
1. Fake Crypto Exchanges
A crypto exchange is a marketplace where users can buy and sell popular cryptocurrencies. A common crypto trading scam involves setting up a fake crypto exchange with the express purpose of stealing customer deposits. Some of these fake crypto exchanges will create legitimate-looking websites, create fake customer testimonials, send detailed trading reports, and produce false profit statements in an attempt to appear genuine.
However, this information is just meant to be a smokescreen; there is no trading going on within fraudulent crypto exchanges. In reality, the crypto wallet addresses that are provided for client deposits are just a means of stealing client funds.
Only use highly regulated crypto exchanges
If an exchange lacks proper regulatory licenses, you’ll be at risk – even if the exchange isn’t an obvious scam. In some cases, like the recent FTX scandal, even regulated crypto exchanges engage in deceptive, fraudulent practices.
2. Fake Crypto Wallet Providers
Crypto wallet scams lead you to believe that their purported crypto app is either a protected custodial wallet (hosted by a trusted party such as a bank or broker) or a secure non-custodial (self-hosted) wallet provided by the app. In either case, fake crypto wallets are designed to steal your money. They may even impersonate a genuine crypto wallet brand by mimicking it with a similar-sounding domain name or by using a similar design and color scheme.
3. Rug pull scams
Often taking the general shape of a pump-and-dump scheme, a rug pull is more complex than a fake crypto wallet scam or a social media impersonator. A rug pull scam occurs when the founders or developers of a crypto project (like a new crypto token or the sale of NFTs) raise money from investors, and then either sell off their own shares (or tokens) with no regard for their investors, or simply disappear with the funds.
4. Crypto mismanagement
It’s important to watch out for signs of mismanagement and lack of due diligence when dealing with any cryptocurrency projects, exchanges, wallet providers, or businesses. A crypto-based business doesn’t need to be unregulated or an outright scam to be considered risky. Businesses can still be mismanaged, founders can be negligent (or corrupt), and investor funds can be squandered.
FTX was a large, regulated crypto exchange that operated for years with no apparent issues. In reality, FTX was mismanaging company funds and investor assets and suffered catastrophic losses from leveraged positions that caused investors to lose billions of dollars.
5. Celebrity endorsements and sponsorships
High-profile, highly expensive endorsements from celebrities, professional athletes, and public figures have become a popular way for burgeoning crypto firms to purchase mainstream interest and credibility. However, celebrity endorsements do not necessarily indicate a reliable investment opportunity.
Tom Brady and Steph Curry have both been sued by investors for their endorsements of FTX, the collapse of which resulted in multi-billion dollar losses for consumers. The SEC has also taken action against celebrities like Kim Kardashian for making unbalanced endorsements and claims about crypto projects, and SEC Chairman Gary Gensler recently advised investors to “use caution” when encountering celebrity endorsements with crypto projects.
Remember:
Crypto firms have thrown millions of dollars (or, in some cases, equity stakes) at high-profile celebrities – don’t let crypto firms or exchanges buy your trust. Make them earn it with their reputation, regulatory status, and legitimate operation.
6. Social media crypto scams
Social media has made it easier than ever for scammers to ensnare and defraud unsuspecting crypto traders. I can’t tell you how many times I’ve received messages on social media from potential scammers, claiming to offer an airdrop or promoting a “lucrative” investment for an “amazing” new crypto token.
Sadly, I am often contacted by victims of potential crypto scams who are trying to figure out where their money went, and whether they can recover it (in most cases, they cannot).
I’ve personally been dragged into the world of social media scams. My name, likeness, social handles, and even my personal photos have been stolen countless times to create fake social media accounts. These profiles are meant to imitate me in order to swindle investors and traders by claiming to offer a variety of investment opportunities, products, and services.
Please note:
Below, you can find my only official, public-facing social media accounts:
- Twitter: @shatzakis
- Telegram: @shatzakis
- Instagram: @StevenJosephHatzakis
- Facebook: https://www.facebook.com/shatzakis
- TikTok: @shatzakis
- YouTube: @StevenHatzakis
If you have been contacted by any other social media accounts claiming to be Steven Hatzakis, you are likely dealing with a scam. *All views and opinions expressed within social media accounts are my own.
I’ve had some degree of success reporting these imposter accounts to various social media platforms. In many cases, however, I've been unable to get fake social media accounts removed. Twitter and Telegram will purge fake accounts relatively quickly, whereas Facebook, Instagram, and YouTube are extremely slow to take action. This is an important reminder not to make assumptions: just because an account is still up, doesn’t mean that it’s legitimate.
Do any regulators have blacklists of crypto scams?
Yes, many regulators have put out warnings regarding crypto scams, including the SEC and the CFTC in the U.S. Likewise, numerous international regulators have published blacklists and resources for crypto scams. For example, the Australian Securities & Investment Commission (ASIC) references the Australian Competition and Consumer Commission (ACCC) for its Scamwatch website. The Monetary Authority of Singapore (MAS) has also put out similar cryptocurrency warnings and resources for investors.
Can you recover stolen crypto?
No. In most cases, stolen cryptocurrency cannot be recovered due to the anonymous and irreversible nature of crypto transactions. While crypto transactions are public, the identity of wallet owners cannot always be determined.
There may be instances in which lost cryptocurrency funds can be tracked to an exchange and frozen, but these are exceptionally rare. Hackers that have accessed your crypto wallet will move quickly to drain the balance, or to quickly mix the funds with a number of other wallet addresses – this makes it trickier to trace where your funds have gone. If you have been tricked or scammed into sending a bad actor your cryptocurrency, they will move fast to liquidate it at a crypto exchange.
What can I do if I get scammed out of crypto?
Crypto transactions are irreversible; if you’ve been scammed, you’ll almost certainly be unable to recover your funds. That said, one benefit of blockchain technology is that all transactions are public, and there are some steps you can take to improve your chances of a proper investigation and potential recovery.
In the U.S., for example, you can file a complaint against a crypto scammer with the Internet Crime Complaint Center (IC3) division of the FBI. You can also report imposters to the FTC using this dedicated form.
Pro tip:
Make sure to gather as much information as possible when planning to lodge a complaint against a crypto scam. Collect names, phone numbers, email address, websites, crypto wallet addresses, and any other information that might be useful during an investigation.
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About the Editorial Team
Steven Hatzakis is the Global Director of Research for ForexBrokers.com. Steven previously served as an Editor for Finance Magnates, where he authored over 1,000 published articles about the online finance industry. A forex industry expert and an active fintech and crypto researcher, Steven advises blockchain companies at the board level and holds a Series III license in the U.S. as a Commodity Trading Advisor (CTA).
John Bringans is the Senior Editor of ForexBrokers.com. An experienced media professional, John has close to a decade of editorial experience with a background that includes key leadership roles at global newsroom outlets. He holds a Bachelor’s Degree in English Literature from San Francisco State University, and conducts research on forex and the financial services industry while assisting in the production of content.
Joey Shadeck is the Content Strategist and Research Analyst for ForexBrokers.com. He holds dual degrees in Finance and Marketing from Oakland University, and has been an active trader and investor for close to ten years. An industry veteran, Joey obtains and verifies data, conducts research, and analyzes and validates our content.