As the cryptocurrency space continues to heat up, the FOMO to join in the ‘party’ can be very real. To avoid falling prey to crypto scams, here are some of the common ones around you should take note of.
With the rise in the adoption of cryptocurrencies comes the rise in cryptocurrency scams.
Between 2018 and 2020, the Singapore police received 533 reports of crypto-related fraud or crimes, of which more than 70% were made in 2020. This rise in crypto scams has also been prevalent in other countries, such as the USA, which saw more than US$80 million lost in crypto scams since October 2020, with 20- to 39-year-olds hit particularly hard.
Before we dive into some of the common crypto scams, if you’re new to the cryptocurrency space, here are some articles to get you started:
- Guide To Cryptocurrency
- Best Cryptocurrency Exchanges To Use
- How Bitcoin Works
- How Ethereum Works
- Guide To Meme Coins
To help you avoid falling prey to some of these scams, we’ll explain some of the common ones around that you should be aware of.
#1 DeFi Rug Pulls
The exit scam.
Decentralised Finance (DeFi) refers to systems built on blockchain technology. It starts with a DeFi project created by scammers that take to various mediums,such as social media channels like Twitter and Telegram, to create hype and frenzy around how promising the project is.
People worry about missing out on the next big thing. By creating buzz surrounding the project’s potential for exceedingly high returns when you lend your money, prospective investors would then pile in on the promising DeFi project before they ‘miss the boat’.
As the funds start rolling in and reach a substantial amount, the rug is then pulled out from under them. The scammers cash out on all that liquidity, abandoning the so-called project and disappear, along with all the funds or crypto assets.
Like a pump-and-dump scheme, another characteristic of a rug pull is the price of the coin skyrocketing multiple times in a very short time period. This typically happens on decentralised exchanges as tokens can be created for free without auditing required.
Examples of such a rug pull: Meerkat Finance, Compounder Finance
#2 Fake cryptocurrency exchanges
You’ll need an account with a cryptocurrency exchange to trade cryptocurrencies — just like you need a brokerage account to buy and sell stocks and more. Via a cryptocurrency exchange, you can trade any coins that the platform offers.
However, not all cryptocurrency exchanges are legitimate.
There have been many cases of fake, unregulated cryptocurrency exchanges scamming investors of their hard-earned money. This typically starts with attractive promotions for victims to deposit their funds, such as free tokens, high lending rates and more.
When you sign up for a fake exchange you could encounter high initial fees, pressure to deposit more money and difficulty in withdrawing funds. In the worst case scenario, your money could entirely disappear.
Examples of such a scam: BitKRX, Komid
To ensure that you’re not putting your money into a sham exchange, only use reputable cryptocurrency exchanges that are commonly used amongst local crypto investors.
#3 Social media scams
Another common crypto scam involves sending your cryptocurrency to someone else, such as a famous celebrity. This might ring a bell because it sounds just like how someone might transfer cash to an online lover overseas.
The most well-known social media scam centres around Elon Musk in January 2021, when hackers created a fake Elon Musk account and posted about a free Bitcoin (BTC) giveaway. This was done by posting a link to a Bitcoin wallet and posing as Elon Musk offering to double any Bitcoin deposits sent to that link.
Sounds too good to be true? That’s exactly how the victims of that scam lost their precious BTC, now worth more than US$47,000 each.
Avoid sending your crypto to a stranger (even if he could be a famous billionaire), unless it is a valid transaction, such as ones on a peer-to-peer (P2P) platform like Binance. Even then, you should also do your due diligence to ensure that the person you’re transacting with is trustworthy.
How to protect yourself
Here are some of the steps you can take to protect yourself and your crypto assets.
- Do your due diligence. Check that the platform and the team behind the product are legitimate. This means verifying that the company has a proper website, employees, social media channels and plenty of reviews from people using the platform. When browsing social media, be sure to exercise your own judgement — trust only sources that are verified and legitimate, as imposter social media accounts are common.
- Take your time to think your investment through. Some scams tap on your sense of urgency (or FOMO) to pressure you into making a snap decision, such as to quickly deposit more funds for higher returns before the promotion ends. Give yourself time to think and understand the product before you put your money in it.
- Don’t invest if you’re unsure. Have that nagging feeling at the back of your mind? That means you’re unsure about the platform and your investment. Don’t jump into making an investment until you are confident and sure of your decision.
- Stay clear of investment products that sound too good to be true. Returns will always come with a degree of risk — the higher the returns, the higher the risk. Something commonly said about scams in general (not just crypto scams) is to be wary of products that sound like a great deal.
- Do not invest what you cannot afford to lose. Cryptocurrencies are notoriously volatile. Bitcoin has seen highs of more than US$60,000 per coin and also lows of US$30,000 per coin, all within the span of just four months in 2021.
Finally, if you want a piece of the crypto pie and reduce the risk of being scammed, it’s best to stick to the big boys such as Bitcoin, Ethereum, XRP and Cardano.
While investing a portion of your portfolio in cryptocurrency could prove to be a good move, do remember that it comes with risk. You can protect yourself by limiting your cryptocurrency exposure and diversifying your portfolio across different asset classes, such as stocks, bonds, exchange traded funds (ETFs), commodities and more!
Read these next:
How To Avoid Being Scammed, With This Scam-Proof SingSaver Guide
In the News: Is Your Investment A Scam? Here’s How to Tell
A Guide To Avoiding Common Money Mistakes In Singapore
What Really Happens If You Skip Credit Card Bills, Loan & BNPL Payments
A Keen Investor’s Guide To Cryptocurrency (2021)