As some cryptocurrencies have delivered large returns in the past, you may be more likely to overlook red flags when you’re assessing an investment opportunity. Yet falling victim to a scam could leave you out of pocket and affect your mental wellbeing, so being aware of the warning signs could be essential.
According to the City of London Police, more than £612 million was lost to investment fraud in 2023, and many scammers are using the growing interest in cryptocurrency to entice victims.
Indeed, the figures show cryptocurrency accounts for more than 40% of all investment scam reports and was the most common commodity that victims believed they were buying.
The money lost through crypto scams can be substantial.
In a prosecution brought by the Financial Conduct Authority (FCA), two individuals were convicted in November 2024 of defrauding 65 investors out of more than £1.5 million – the equivalent of around £23,700 for each victim. The duo used cold-calling to establish contact with victims and then directed them to a professional-looking website that claimed to offer high returns in crypto.
Smaller upfront investments could be used to entice crypto scam victims
The City of London Police report suggests one of the reasons why crypto scams are growing is that fraudsters ask for a smaller upfront investment to “prove” the opportunity is legitimate. This could give targets a false sense that the investment is low risk and offer a sense of security.
There are other reasons why even savvy investors might be more likely to fall for a crypto scam too, including:
- Crypto is still a relatively new asset, and many people don’t fully understand what the term means. According to a 2023 report from the Financial Services Compensation Scheme (FSCS), while 91% of consumers had heard of cryptocurrencies, only 11% said they had a good understanding of how they worked. Scammers may use this lack of knowledge to gain the trust of victims.
- Some crypto assets have delivered large returns, which may make bold claims by scammers seem reasonable. For example, figures published by Morgan Stanley in October 2024 suggest Bitcoin’s average annual return between 2014 and 2024 was 49%. However, it’s important to note that investment returns can’t be guaranteed and the value of crypto assets is often volatile.
- A 2024 survey from the FCA found that 38% of participants had seen or heard an advert about cryptoassets, up from 27% in 2020. Social media was the most common place people remember seeing a crypto advert and it could give the false impression that everyone else is investing in crypto. For some, this view might mean they’re more willing to listen to a scammer if they’re targeted.
So, with crypto scams on the rise, if it’s an asset you’re interested in learning more about, it’s crucial you take steps to protect your wealth.
How to protect your wealth from crypto scams
Be wary of adverts promising high returns
While potential high returns can be tempting, if you spot an advert or social media post promising significant returns, be cautious. Ask yourself if the claims sound realistic.
It’s also important to note that investment returns cannot be guaranteed. So, if an advert states there is no risk of you losing your money, it should set alarm bells ringing.
As the old saying goes, “If it seems too good to be true, it probably is.”
Treat cold-calls with suspicion
If you’re contacted out of the blue about an investment opportunity, treat the communication with suspicion. This is a common tactic that scammers use to establish a relationship and gather information about you.
It’s not just calls or messages to your phone you need to be cautious of. Scammers might also email or message you on social media.
Don’t rush into investment decisions
If you see an investment opportunity that you think could boost your wealth, it can be exciting. However, it’s important not to rush into a decision. Instead, take a step back and do your research.
Fraudsters will often pressure you to make a decision quickly, so you don’t have time to think. They might say offers are for a limited time or there are only a few opportunities to invest, so you need to beat other people to it.
Scammers might try to use the volatility of the crypto market to apply further pressure. For instance, they may say the value of the asset is rapidly climbing, so you need to make a decision right away or miss out on the opportunity for good.
Legitimate financial professionals will understand the importance of considering investments, and won’t pressure you to commit on the spot.
Research the firm
It’s not just the investment you should research either, but the person or firm you’d be working with.
Scammers will often go to great lengths to convince you they are a genuine professional. So, don’t take a glossy website or glowing reviews at face value, dig a bit deeper.
The Financial Services Register allows you to check if individuals or firms are authorised by the FCA.
Some criminals will pose as a legitimate firm to gain your trust. So, use the contact details on the Financial Services Register to check the person you’re speaking to is genuine and confirm the information you have.
Don’t be afraid to seek advice
You don’t have to review an opportunity on your own. Sometimes, speaking to a trusted loved one or independent financial planner could help you identify potential red flags you’ve overlooked.
Even genuine crypto investment opportunities can be high risk and might not be right for you. So, speaking to a professional could help you understand how it might fit into your wider financial plan and provide a chance to review the alternatives.
