October 28, 2021

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US Financial Regulator Highlights Key Red Flags to Avoid Crypto Scams

Crypto investment scams have quickly become one of the most significant threats to online investors. They promise easy money with low risks, but that’s just the bait for the trap. They’ve become such a problem that financial regulators and watchdogs around the world are taking action, with the US Securities and Exchange Commission having released a statement on the issue in September 2021.

SEC Puts Out Statement on Rising Cryptocurrency Scams

In their statement, the SEC warns investors about cryptocurrencies, tokens, initial coin offerings (ICOs), and other so-called “cutting-edge” investment opportunities found online. While there are many legitimate ways to invest in cryptocurrencies and crypto projects, scammers are taking advantage of this to find more and more victims.

The SEC warning mentions one case, in particular, their enforcement action against BitConnect. They describe BitConnect as a “Ponzi-like scheme,” where the scammers managed to bring in over 2 billion USD in cryptocurrencies from their victims. This is a prominent case that highlighted a number of the tactics that most cryptocurrency scams still use today.

Trading bots, fake celebrity endorsements, YouTube testimonials, and extensive social media marketing were all a big part of what drew in new victims to BitConnect. To convince earlier investors that their investments were real, they would pay them out using incoming funds from new investors. This type of scheme only lasts for so long, and eventually, those at the bottom are left with nothing.

Remaining cautious around any online investment opportunities is always a prudent decision. The SEC highlighted a few of the main red flags that investors should watch for when evaluating the trustworthiness of cryptocurrency-related investments.

Guarantees of High Returns

Guarantees carry a very specific meaning in the world of investing. They aren’t a simple assertion that the investment is of high quality. They are used in assets like certificates of deposit or bonds. When a cryptocurrency investment opportunity uses the term “guaranteed returns,” it’s just another scam like 1K Daily Profit which was exposed on industry watch dog site ScamCryptoRobots.com

This is true of most conventional investments as well, not just cryptocurrencies. Crypto, in particular, has been highly volatile since its inception, making it a high-risk investment that no organization could offer guaranteed returns on.

Unlicensed Brokers

Brokers facilitate investments, allowing traders to reach out to each other. For crypto, this generally means going through a crypto exchange. However, many investment opportunities are actually offering derivative assets on cryptocurrencies rather than the currencies themselves.

In any case, the broker should be registered with the appropriate financial regulator in order to sell securities. In the USA, this body is the SEC. The UK has the FCA, and Europe has numerous regulators who cooperate under the ESMA. These organizations stop licensed brokers from implementing predatory practices and ensure that adequate investor protections are in place.

Accounts With Skyrocketing Values

A common tactic used by scammers is to post examples of accounts making huge profits very quickly. They might claim that a video is a live demonstration, with numbers quickly increasing from hundreds to thousands. These are just materials and stories they’ve invented to spread their scam, as no legitimate investment opportunity would advertise itself this way.

Phony Testimonials

To make their scams more convincing, scammers will often use fake testimonials. These can be as simple as text on a website telling a made-up story about how someone became rich through the supposed investment opportunity. Others even produce videos where actors read scripts with similar accounts, trying to convince people that others have made money before them.

If It’s Too Good to be True

The SEC stresses that the best way to protect yourself from online investment fraud is to take everything with a grain of salt. Investments that have the potential for high returns are essentially always high risk, and anyone telling you otherwise about their opportunity is almost surely trying to take your money and run.

What to Do When You Find a Potential Investment

Whenever you find a potential investment opportunity online, the first thing to do is verify that the broker or whoever is offering the investment is registered with the appropriate financial regulator. You should also take care to ensure that they really are who they say they are and only deposit funds through official means. A little extra precaution could save you a lot of money when dealing with cryptocurrency scammers.