Cryptocurrency Investment Scams

Cryptocurrency Investment Scam Overview

Cryptocurrency investment scams frequently take the form of websites or social media personalities who promise astronomical returns for a small investment. Scammers then request additional funds in cryptocurrency from you in order to “release” your initial profits.

  • Any investment firm that requests you send them Bitcoin or cryptocurrency instead of traditional forms of payment should be considered fraudulent.
  • Any investment firm that asks you to pay them more than your initial investment in order for them to release your funds should also be regarded as fraudulent.
  • If you come across these types of investment scams, you should report them to the authorities in your area.

ICO Scams

Blockchain technology has advanced to the point where anyone can now easily create their own coins using freely available tools. Scammers have taken advantage of this opportunity to create their own tokens with no real utility other than to transfer wealth from the buyer of the coin to the scammer selling it.

Be wary of anyone who asks you to purchase a coin that promises to pay you a profit. The SEC would most likely consider this coin to be an unregistered security, and the promised future profits will never materialize.

Pump and Dump Scams

Pump and dump scams occur when a scammer generates a lot of attention on social media or other channels about a coin in the hopes of driving up the price while selling it to unwitting investors.

When the price has risen significantly, the scammer dumps the coins back onto the market, causing the price to fall. The perpetrator of the pump-and-dump profited from the inflated coins, while the investors were left as victims holding worthless coins.

Cloud Mining Scams

All new Bitcoins are created through the mining process, in which a global network of powerful computers perform complex mathematical operations to verify new Bitcoin transactions and add them to Bitcoin’s general ledger, the blockchain. These computers receive a reward from the network in the form of new Bitcoins in exchange for performing this service.

Mining is a very real part of the Bitcoin economy, but most of the websites promising quick profits from renting these mining computers are fraudulent.

  • Be wary of companies that make bold claims about their mining fees and returns without providing any supporting documentation.
  • Before investing your money, it is critical to research opportunities and understand the risks and costs associated with any mining company.

DeFi Rug Pulls

DeFi Rug Pulls are a type of exit scam in which the developers of a Decentralized Finance (DeFi) project steal the funds of investors. In a typical rug pull, scam artists persuade would-be investors to exchange their coins with real utility — such as Bitcoin or Ethereum — for useless coins that the scammers pitch as an investment for future returns or will have some promised future use case.

When the scammers cash out the investors’ ETH or BTC, the rug is pulled. These transactions take place on Decentralized Exchanges (DEX), which are not regulated in the same way that real-world companies are, allowing scammers to list these unregistered coins to sell to unsuspecting victims.

Online Exchange Scams

Criminals will set up bogus cryptocurrency exchange websites in order to steal your money and compromise your personal information. These websites frequently appear to be professionally designed and may claim to be associated with legitimate, well-known organizations. 

These websites entice customers to sell Bitcoins at unrealistic, below-market prices. Anyone offering such unusual discounts or returns is almost always a sign of a scam.

  • Never send Bitcoin to a new exchange without first looking for the green lock symbol or the ‘https’ tag in the URL.
  • Type each letter of the URL into your address bar by hand to ensure you aren’t clicking on a spoof site, and keep an eye out for small, subtle differences in these letters in the URL.
  • All businesses in the United States that exchange cryptocurrencies for US dollars must register with FinCEN, a branch of the US Department of the Treasury.

Investment Scam Red Flags to Look Out For

  • Scammers cannot answer actual investment questions that victims have such as how their “guaranteed ROI” plan works and how it’s done, any questions about what their portfolios look like, and tax forms and how to pay taxes.
  • Working directly with a “trader/miner/rep” on social media or via text message 
  • Websites appear obviously fabricated
    • Links on site that do not work
    • Business addresses leading to nowhere or to buildings that do not have businesses in them (ie small houses listed on exchange sites, or parking lots, etc).
    • Offering plans guaranteeing unusually large ROIs in package deals, often through daily returns with tier names like Platinum, Gold, Level 5, etc.
    • Filler text like “Lorem Ipsum”.
    • Stock image models used for employee listings, board members, or fake site reviews.
  • Scammers will try to take conversations onto third party apps from where the victim meets the scammer
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