Crypto investment scams accounted for $575 million of all losses reported to the Federal Trade Commission in 2021. Scammers are taking advantage of both the popularity and complexity of cryptocurrency to carry out investment scams that promise an easy payout with little risk. However, cryptocurrency is extremely unpredictable and no one can promise a low-risk return on investment.

Whether you are a seasoned crypto investor or new to the game, it’s crucial to stay in the know about what scams are out there. Let’s take a look at two common crypto scams, how to spot them and what to do if you come across one. 

2 Common Crypto Scams Targeting Investors

Crypto scams can come in many shapes and sizes, but they are all on a mission to steal your money. In order to spot and avoid one of these scams, you have to first know what types of scams are out there.

Rug Pull Scams

Rug pull scams are nothing new and have existed in the investment world long before cryptocurrency. For this type of scam it’s important to remember that anyone can develop a new cryptocurrency and sell it on a decentralized exchange (DEX). This scam involves a developer who seeks out investors for a new cryptocurrency project. For authentic new crypto tokens, once enough seed money is collected, the token becomes a coin. However, during a rug pull scam the developer pulls out before the project is complete, taking all the invested funds with them. This leaves investors with nothing but worthless tokens and an empty wallet.

Pump and Dump Schemes

This type of scheme is similar to rug pull scams, however instead of creating a new cryptocurrency, a scammer will invest in a random, cheap coin. Then, they will use social media and email to convince others to invest in the same coin. This sudden hype will cause the value to rise. Once the coin has reached the scammer’s target value, they will sell it all. This causes the value to drop which prompts other investors to sell their shares, plummeting the value even further. Those that bought in later see a greater loss and the scammer walks away with a hefty profit.

How To Spot the Scam

There are some tried and true signs that a crypto investment opportunity is a scam. Be on the lookout for these red flags.

They guarantee that you will see a high return with little to no risk and promise that you can make quick money. They might use terms like “risk free” or “zero risk,” but keep in mind that crypto is volatile. No investment in crypto is free of risk. Trust your gut. If the offer seems too good to be true, it’s a scam.

Fraudsters take advantage of the fact that most people don’t know much about cryptocurrency by purposefully using complex terms and concepts to mislead them. If you are unsure about something, do your research before proceeding. Use resources like the BrokerCheck by FINRA, which tells you whether a person/firm is registered to sell investments or offer investment advice. Don’t move forward with an investment until you fully understand the opportunity and its risks.

The firm asks you to share your private keys to take part in the investment opportunity. Private keys—similar to a password—are required to access funds within a crypto wallet and should not be shared with anyone. If the private key to your crypto wallet is compromised, you need to move all of your cryptocurrency to a new wallet immediately.

What To Do If You Come Across a Crypto Scam

Cryptocurrency is a decentralized, virtual currency meaning that there are no banks that manage transactions and funds like the U.S. dollar. Although some people may see this as a positive, crypto is not federally protected against bank failure or theft like money in the bank. Once your crypto is gone, it is very unlikely that you will ever see it again. If you find yourself in the middle of a crypto scam, take these immediate action steps:

• If your crypto wallet private key was compromised, move all of your cryptocurrency to a new wallet immediately.
• If you shared financial information to purchase cryptocurrency, such as your bank account or credit card number, contact your bank or credit card company right away.
• Report all crypto scams, whether or not you lost money, to the Federal Trade Commission.

Discover more resources to help recognize, report and recover from these scams on our cryptocurrency scams page.