10 common crypto scams and how to avoid them

In simply the primary half of this yr, funding scams conned Canadians out of $161 million—most of it misplaced to cryptocurrency scams, in accordance with the Canadian Anti-Fraud Centre (CAFC). “Crypto investments are the highest kind of funding scams reported to CAFC,” says Jeff Horncastle, the group’s appearing shopper and communications outreach officer. He provides that fewer than 5% of scams are reported, so the precise numbers are possible a lot greater.

Scammers typically discover victims on social media

Cryptocurrency scams are sometimes intertwined with other types of scams—and the criminals behind them solid a large web. “Sadly, everyone seems to be focused,” Horncastle says.

Con artists often discover potential marks on social media. Based on an analysis by TradingPlatforms primarily based on FTC knowledge, practically one-third of social media crypto fraud occurs on Instagram, and one-quarter on Fb. 

“In some instances, the rip-off begins as a romance rip-off and rapidly turns into an ‘funding alternative,’” says Horncastle. “As a result of suspects have gained the sufferer’s belief, it may possibly result in a high-dollar loss for the sufferer.”

10 forms of crypto scams

There are numerous forms of scams to be careful for, and sadly, as traders get savvier, the cons evolve and change into trickier to identify. To guard your self, at all times know the place your cash goes, perceive the crypto advertising rules in Canada, and solely use trusted and compliant crypto buying and selling service suppliers. (As a place to begin, see MoneySense’s picks for the top crypto platforms in Canada, that are all registered with Canadian securities regulators.) An exhaustive listing of crypto scams is probably going not possible, however to guard your self, listed here are 10 to be careful for.

1. Pump-and-dump, or rug pull

In a “pump and dump” or “rug pull” scheme, promoters of a cryptocurrency hype it as much as enhance demand, and when the worth soars, they promote all their cash for a fast revenue. As a result of they promote in giant volumes, different traders get nervous and promote their cash, too. As panic units in and the promoting spreads, the coin’s worth plunges. The promoters get wealthy and small traders are left “holding the bag,” confronted with big losses. 

A infamous instance of an alleged crypto pump-and-dump scheme is a coin referred to as Squid Game. Launched in October 2021, it rode the recognition of the Netflix sequence of the identical title—regardless of having no affiliation. Lower than two weeks later, Squid Recreation’s crypto builders abruptly bought their holdings when the coin’s value hit $2,800, making themselves $3.3 million richer (all figures in U.S. foreign money). In the present day, one Squid coin is value about a tenth of a penny.

The pump-and-dump rip-off will not be distinctive to crypto, in fact. It’s what high-flying stockbroker Jordan Belfort—the topic of the Hollywood movie The Wolf of Wall Road, starring Leonardo DiCaprio—engaged in in the course of the Nineties. His agency was accused of artificially inflating the worth of penny shares earlier than promoting their shares to make numerous quick cash—costing traders as much as $200 million. Within the early 2000s, Belfort served 22 months in federal jail for securities fraud. He’s now advertising and marketing himself as an investment guru.