Cryptocurrency Fraud

En español | Cryptocurrencies such as Bitcoin, Ethereum, Solana and hundreds more are a hot commodity in online trading, and it’s possible for a smart investor to make a big profit. But the prospect of quick riches can blind some people to the risks and enable crooks to lure them into scams.

This virtual money isn’t backed by any government or central bank. Even so, you can use “crypto” to buy goods and services, exchange it for U.S. dollars and other conventional currencies on digital markets, and even obtain it at specialized ATMs.

But unlike government-backed money, the value of virtual currencies is driven entirely by supply and demand. That can create wild swings that produce big gains for investors, or big losses. And crypto investments are subject to far less regulatory protection than traditional financial products like stocks, bonds and mutual funds.

Cryptocurrency fraud has taken a quantum leap in recent years. The Federal Trade Commission (FTC) received nearly 6,800 complaints of cryptocurrency investment scams from October 2020 through March 2021, up from 570 in the same period a year before. Reported losses grew more than tenfold to above $80 million.

For all cryptocurrency’s high-tech gloss, many of the related scams are just newfangled versions of classic frauds. For example:

Bogus websites. Phony sites festooned with fake testimonials and studded with crypto jargon promise huge, guaranteed returns on investments.

"Celebrity" endorsements. Con artists posing online as billionaires or other big names promise to multiply your investment in crypto but instead pocket what you send.

Pump-and-dumps. Using messaging apps or social media, crypto promoters plant rumors that a famous mogul is backing a certain currency. The aim is to lure investors to buy, drive up the price and then sell their stake, causing the currency’s value to plummet.

Ponzi schemes. Some crooks peddling crypto create the illusion of big returns by paying off old investors with new investors’ money. Federal authorities are pursuing criminal and civil cases against one such operation, called BitConnect, that raised more than $2 billion before it was shut down.

Romance scams. Crooks persuade people they met on dating apps or social media to invest or trade in virtual currencies. The FBI’s Internet Crime Complaint Center (IC3) fielded more than 1,800 reports of crypto-focused romance scams in the first seven months of 2021, with losses topping $133 million.

Other scammers pose as legitimate crypto traders or set up phony exchanges to lure people into giving them money. Another con involves fraudulent sales pitches for “IRS approved” individual retirement accounts in cryptocurrencies. There are also straight-up hackers who break into the “digital wallets” where people store their virtual currency.

And crypto is creeping into everyday impostor scams, with crooks pretending to be government or lottery officials demanding payment in virtual currency for supposed debts, bills or prize fees, directing their targets to crypto ATMs and walking them through the transaction.

Warning Signs

• Someone you don’t know sends you a message out of the blue about a virtual currency investment opportunity. 
• The pitch claims that the investment involves no risk and surefire profits.
• A call, text, email or social media message claiming to be from a government agency, utility or other official body seeks a crypto payment to cover a bill, debt or fee.

Updated January 19, 2022