Cryptocurrency Scams

Most victims fall for one of five types of cryptocurrency scams.

It’s a Global Problem

The entire virtual currency market reached a capitalization of nearly $2 trillion dollars in just 12 years. By the end of 2017, the price of a single bitcoin was $13,889.99.  It is no coincidence that just a few weeks later the U.S. Commodity Futures Trading Commission (CFTC) filed the first three lawsuits against cryptocurrency scams. The suit accused the individuals who ran them of fraud, misrepresentation and misappropriation in connection with bitcoin trading. Law enforcement authorities in virtually every major country are now seeking crypto scammers.

Bitcoin Scammers Are Very Busy

James McDonald, the CFTC’s Director of Enforcement, said that one of the scammers “sought to take advantage of that public interest, offering retail customers the chance to use bitcoin to invest in binary options, when in reality they were only buying into a Ponzi scheme.”

Another of the alleged scammers “engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies.” Nonetheless, he never supplied to his clients the supposedly expert, real-time virtual currency advice that he promised. His investors “never saw those funds again.”

The CFTC did not disclose details of the case against the third scammer were it filed the lawsuit.

Cryptocurrency scammers are inventive and never cease to come up with a new way to steal your coins. Most of their victims, however, report falling for one of the five types of cryptocurrency scams below.

Pump and Dump

This is a veteran scam perfected by Jordan Belfort and popularized in the movie The Wolf of Wall Street. Scammers “pump up” or promote an “altcoin” they own in bulk and then sell it off in bulk once the price peaks. Of course, they were the ones who peaked the price in the first place by artificially increasing demand. What made Pump and Dump especially viable for scammers and especially dangerous for investors was the glut in under-sold Bitcoin alternatives (there were 45 of them by the end of 2017). By the way, speaking from his own experience, Belfort called cryptocurrencies “a wolf in sheep’s clothing.” He added that initial coin offerings (ICOs), the initial price for a new cryptocurrency, were “the biggest scams ever.”

Investment Clubs

They may be popular, but the only ones who profit from online crypto “clubs” are the scammers who run them. Their sites certainly look legitimate. Like binary options sites, they’re also sure to feature photos of satisfied members who claim they made megabucks by trusting the hidden cryptocurrency pros who stand behind the curtain. But again, just like with binary options scams, the last time you see your money will be when you hand it over to them.

Fake Exchanges

Fake cryptocurrency exchanges are easy to find. They’re all over cyberspace. They’re especially dangerous for first-time investors. They will find it hard, if not impossible, to distinguish fake exchanges from legitimate ones. In December 2017, Korean authorities closed down one of them, BitKRX. What was particularly pernicious was that BitKRX usurped the last three letters of its name from KRX, the Korean Stock Exchange. It purposely misrepresented itself in order to provide itself with a veneer of legitimacy.

Fake Wallets

No scam fits cryptocurrencies as well as fake wallets do. “Altcoins” are bytes of data, rather than metal. Therefore, owners have to park them somewhere online in a “digital wallet.” Innovative scammers with good marketing skills set up their own digital wallets. They then aggressively advertise for customers to come along and park their digital currency. Once they do so, their cryptocurrency disappears forever. And the operators of the fake digital wallet fade into the digital sunset.

Ponzi and Pyramid Schemes

Needless to say, most cryptocurrency investors acquire digital currency because they believe that their investments are going to appreciate in value at a rapid pace. So why would someone offer you a higher interest than the market currently bears? The most obvious answer is because the offer is a red light for a cryptocurrency Ponzi or pyramid scheme. One of them, GladiaCoin, promised to double the value of all Bitcoin deposits within 90 days. It collapsed from its own weight in June 2017. The phenomenon will continue. There are other such online schemes that also employ the same 200%-in-90-days business model. They eventually will collapse as well. The main difference between the operators of these sites and Charles Ponzi, who gave his name to this type of scheme, is that these guys, unlike the late Mr. Ponzi, are anonymous.

If you think you have been victimized by a cryptocurrency scam, consult with the fund recovery experts at MyChargeBack.  Challenging crypto scammers can be very complex and mistakes can cost you. MyChargeBack analyzes your case and assists you throughout the entire recovery process.