Five ways to spot a crypto scam

Scammers are clever people, and they are after your money. They take advantage of lack of awareness of investing, feed the fear of missing out on high returns, and use social engineering to persuade their victims that what they’re asking is above board. With crypto starting to rally again after more than two years in the doldrums, they’re ready and waiting.

The FCA has found that 80% of people who contact them about a potential crypto scam have already invested their money. This is unusually high, and shows that it’s harder to smell a rat and walk away when crypto is involved. Here are five ways to spot a crypto scam before taking the plunge.

1. Where did you hear about the scheme?

Social engineering is part of the scam toolkit. If they contacted you through social media, through a friend on a WhatsApp group, or you spotted an ad with familiar celebrity endorsements, stop right there and dig deeper. Advertising crypto services is heavily regulated in the UK and anyone doing so, by any method, has to be registered with the Financial Conduct Authority (FCA).

Many scams where people have lost money involve someone in the community being manipulated by criminals to promote the scheme to their friends. Coscoin is a recent example, where 78 people on the same WhatsApp group lost over £200k to a Ponzi investment.

2. Is there a prominent warning on their website?

Crypto is deemed to be a High Risk Investment by the FCA and every UK registered crypto company (of which there are only 43) has to display the following text throughout their website:

Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.

If there’s no warning, they’re not UK registered, and there will be no protection available if something goes wrong. (Of course, criminals know this, and I would not be surprised to see warnings popping up on scam websites in due course.)

Check them out – you can find a list of UK registered companies on the FCA website. Some legitimate crypto service providers, such as the Kraken exchange, are registered through a representative, so it is worth searching for the name of the provider who has approached you. If they’re not listed, try Google to see if and where they are registered and if there’s anything suspect being reported. Regulators in Washington State put out a warning about Coscoin several months before the FCA did the same. Failed exchange FTX was not registered in any country and there were warnings online before it crashed.

3. Who’s behind it?

Check the website for clues. I go straight for the Privacy Policy, required under UK and EU Data Protection Regulations. If there isn’t one, or it doesn’t show a real address and contact details, that is a red flag. What about the people listed on the site as owners and managers? Are they real? You’d be surprised how many AI-generated characters pop up on these pages. If they’re real, check their LinkedIn profile and see if they list the company in their experiences. Scammers have been known to add well-known people to their website while the actual individuals have no connection with it at all.

4. Are they asking you to send money? How?

There are legitimate, registered crypto custodians such as Coinbase, Gemini, Solidi and others where you can set up an account that you control, deposit money, and exchange it for crypto assets. If you’re being asked to send money directly to a third party, stop!

Scammers have been known to ask for money via PayPal or overseas crypto exchanges, reducing the chances of tracing the funds. They avoid legitimate routes because of Anti-Money Laundering and Counter-Terrorist Financing rules that now include providing the name and address of the recipient of any transfer. There are also cases of scammers providing their victim with a crypto wallet that appears genuine, but is controlled entirely by the criminals.

5. If it looks too good to be true…

… then it probably is. The stock market has risen by around 3.5% since November 2021. Interest rates are sitting at 5.25% at the time of writing. If someone is promising multiples of that, how are they managing it? Ponzi schemes are a great example, where early investors think they’re receiving high returns, but they are simply being paid out of the money later investors have put in.

Yes, people make money out of crypto investing, but they are either tech enthusiasts who got interested in Bitcoin when 10,000 coins could buy $40 worth of pizza, or experienced investors who understand the market and the assets themselves. It’s worth noting that since November 2021 while the stock market has been largely flat, Bitcoin’s value fell sharply, by almost 75%, and is only now starting to recover, currently 25% lower than the 2021 high.

What now?

• Learn about crypto. The more you know, the more likely you are to smell a rat if a scam is presented to you.
• Don’t be pressured into acting. Urgency, deadlines, fear of missing out are all used to manipulate victims.
• Do your research before investing.

Pre-order “Getting Started with Cryptocurrency: An introduction to digital assets and blockchain” out on 17th April from BCS Publishing.