How to Help Spot a Crypto Scam

Cryptocurrency, also known as crypto, is digital currency that is encrypted and decentralized. Over recent years, cryptocurrencies such as Bitcoin and Ethereum have made headlines for its considerable volatility and risk.

While many people are drawn to cryptocurrency, it carries significant peril. For example, crypto holdings are not insured by the Federal Deposit Insurance Corporation (FDIC), which does insure traditional bank deposits in accounts such as checking and savings. This means that a crypto investor assumes a considerable risk of losing their money during a crash.

But that isn't where the risk ends. The world of cryptocurrency has created a new environment for scammers to steal from others.

In 2023, cryptocurrency investment fraud losses rose to $3.94 billion, an increase of 53% from the previous year, according to a 2024 report from the FBI’s Internet Crime Complaint Center.

In an increasingly digital world, it’s important to learn how to spot a bitcoin scam or any kind of crypto scam. The information below can help you get started with protecting yourself.


Types of Cryptocurrency Scams to Watch

If you decide to take on the considerable risks associated with investing in cryptocurrencies, you should take every step possible to prevent yourself from falling victim to scammers. Part of this process is familiarizing yourself with some of the most common scams involving crypto.

Here are a few to know about.

Fake Cryptocurrency Websites

Scammers often spoof a legitimate cryptocurrency website or create a fake website to trick victims into purchasing cryptocurrency. It may have a similar design to an official website, but the domain name will be slightly different from the legitimate one.

The fake website may include fake testimonials, fake trading platforms and trading records. Once a person pays money to these websites, they might find it impossible to recover their lost funds.

Crypto Phishing Scams

Fake websites often help scammers accomplish something known as phishing. In short, phishing is the process of tricking a person to provide personal information.

In the case of crypto, scammers often use fake websites to try to obtain access to a person's cryptocurrency wallet. During this process, they'll send you an email or a text with a link to their fake site. Always verify the validity of any site before entering sensitive information into it.

Fake Celebrity Endorsements

Some scammers will post pictures of a celebrity or influencer, falsely claiming that the celebrity made a lot of money using their financial services app or program. These organizations might contact you through social media, sending you links or QR codes. Their hope is that the false celebrity endorsement will be enough to convince you that the scheme is real.

If you click the link, bogus financial services will pressure you to open a cryptocurrency account by downloading their app. In some cases, this app may enable remote access to your device, allowing fraudsters access to your funds.

Ponzi Schemes

While Ponzi schemes have been around for decades, they've found new life in the crypto era. In a Ponzi scheme, scammers attempt to recruit you as an investor in what appears to be a legitimate cryptocurrency portfolio. The scammers will continue to recruit new investors, securing more money and — thanks to their accrual of funds — the appearance of legitimacy.

Instead of investing in a cryptocurrency portfolio as promised, they'll use the funds to pay out the initial investors and pocket the rest. Since early investors might receive consistent high returns, they can unknowingly legitimize the Ponzi scheme by endorsing it. Scammers will falsify documents and fabricate account statements to keep the scheme going and recruit more investors.   

Cryptocurrency Donations

It's possible for individuals or corporations to donate cryptocurrency investments to legitimate charitable organizations. This means that it's also possible for scammers to pose as those organizations.

During this scheme, scammers will often set up a fake website that poses as a legitimate charity or, in some cases, a completely made up one. These websites focus on one objective: Taking advantage of a person's charitable inclinations to steal their money.

Rug Pull Scams

Also known as pump-and-dump schemes, these scams involve a fraudster who promotes a crypto product to boost its price. They then take the investors’ money and quietly shut down the project, leaving investors with worthless crypto coins.

Blackmail Scams

Scammers will sometimes try to blackmail an individual by saying they have compromising photos or videos of the person and will request payment with cryptocurrency to avoid them sending the compromising images to others.

When this happens, the FTC advises that you ignore the scammer's threats and report the crime to the FBI.

Business Opportunity Scam

Some scammers will promote fake business opportunities which they often say will make you significant amounts of money with minimal investments of funds or time. During this scheme, a scammer will often act as if the matter is urgent in an attempt to pressure you into providing payment.

Romance Scams

Romance scams sadly exploit the hopes and trust of individuals, including the elderly. During these schemes, a scammer starts a romantic relationship with the victim via email or text. Once the victim’s feelings are involved, the scammer will try to get them to send money for various made up reasons.


How to Help Detect and Prevent Crypto Scams

Investing in cryptocurrency might offer the potential for enormous gains, but it’s crucial to take steps to protect yourself and your money. Consider five tips for protecting yourself from crypto scams.

Stay informed about cryptocurrency and scams. There are thousands of cryptocurrencies available, and each type provides different ways to purchase and store it. With so many options available, it’s important to educate yourself on the process of purchasing and selling the options you choose.

In addition, you should always stay up-to-date about common scams in cryptocurrency markets and be aware of how scammers are approaching investors. If you are contacted to buy or sell cryptocurrency, be extremely cautious about responding and if there's a hint of doubt - don't. 

Do your due diligence. Never invest in a new cryptocurrency or initial coin offering (ICO) without doing thorough research. Be skeptical of any cryptocurrency platform that promotes a guaranteed return. Remember, there's no such thing as a free lunch.

Use reputable wallets with robust security features. When you own cryptocurrency, you can only access your holdings with your private "key," which is the password that gives you access to your money. Most crypto investors use a crypto wallet that keeps their private keys protected and accessible. Make sure you only use a crypto wallet that has robust security features—because anyone who gains access to your private keys will immediately have access to your crypto funds.

Practice good cyber hygiene. Use long passwords, two-factor authentication and update all your software in a timely manner. Do not share your private keys with anyone. If you share your private key with someone, they can access your cryptocurrency wallet, allowing coins to be withdrawn or transferred. 

Check out charities before making a donation. Verify any charitable organization by searching online. Websites like Charity Navigator, Charity Watch and the Better Business Bureau’s Wise Giving Alliance will post details about legitimate organizations and the causes they support.


How to Report a Cryptocurrency Scam

It's important to remember that investing in cryptocurrency is inherently risky, even when scams aren't a factor. If you've chosen to take on the risk associated with investing in crypto, you need to protect yourself if you believe you've been scammed.

If you suspect a crypto scam or believe you’ve been the victim of a crypto scam, visit the FBI page about reporting cryptocurrency scams to find out what to do for your specific information.


This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source.  

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