10 frequent crypto scams and the best way to keep away from them

In simply the primary half of 2024, funding scams conned Canadians out of almost $107 million—nearly half of that ($51.6 million) by way of cryptocurrency scams, in keeping with the Canadian Anti-Fraud Centre (CAFC). Crypto investments are the highest sort of funding scams reported to CAFC, says Nancy Cahill, appearing shopper and communications outreach officer. Fewer than 5% of scams are reported, so the precise numbers are seemingly a lot increased.

Scammers typically discover victims on social media

Cryptocurrency scams are sometimes intertwined with different varieties of scams—and the criminals behind them solid a large web. Con artists continuously discover potential marks on social media. In accordance with an evaluation by TradingPlatforms primarily based on FTC knowledge, almost one-third of social media crypto fraud occurs on Instagram, and one-quarter on Fb. Some ruses begin out as romance scams. As soon as suspects achieve a sufferer’s belief and affection, they current an “funding alternative” or request crypto or cash to pay for a made-up expense, comparable to medical payments.

10 varieties of crypto scams

There are a lot of varieties of scams to be careful for, and sadly, as traders get savvier, the cons evolve and grow to be trickier to identify. To guard your self, at all times know the place your cash goes, perceive the crypto promoting guidelines 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 high crypto platforms in Canada, all of which securities regulators have authorized to do enterprise on this nation.) An exhaustive listing of crypto scams is probably going unimaginable, however to guard your self, listed below 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 massive 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 enormous losses. 

A infamous instance of an alleged crypto pump-and-dump scheme is a coin known as Squid Sport. 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 Sport’s crypto builders immediately bought their holdings when the coin’s value hit $2,800, making themselves $3.3 million richer (all figures in U.S. forex). At this time, one Squid coin is value a couple of tenth of a penny.

The pump-and-dump rip-off will not be distinctive to crypto, after all. It’s what high-flying stockbroker Jordan Belfort—the topic of the Hollywood movie The Wolf of Wall Avenue, starring Leonardo DiCaprio—engaged in in the course of the Nineteen Nineties. His agency was accused of artificially inflating the worth of penny shares earlier than promoting their shares to make a number of 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 funding guru. 

2. Giveaway rip-off, or 2-for-1 rip-off

In a giveaway rip-off, somebody asks you to ship cryptocurrency to their pockets handle, with the promise of sending you double the quantity. “Ship me 1 token, I’ll ship you 2 in return” is a typical overture.  

Such a rip-off is particularly efficient throughout crypto bull markets when traders could also be experiencing FOMO and the prospect of free crypto could appear too tempting to cross up.