According to the Wall Street Journal, in last two years, the United States regulators filed over 90 crypto fraud cases and recovered just $36 million of investor’s funds.
The amount which was lost in crypto frauds in the past two years is huge. According to the Bitcoi.com, crypto traders have lost $100s of millions in the last two years. They even believe that the amount which was lost in frauds equates to $23 million per day. Coincheck, Bitgrail, and Bitconnect were the three largest crypto scams. Though the amount which was lost in frauds was huge but regulators have recovered just $36 million because of the anonymous and borderless nature of digital assets. For regulators, it is hard to track down the lost funds.
According to the Wall Street Journal report, the number of fraud cases has exploded since the cryptocurrency market downturn. When the crypto market was going up in 2017, there were only four cases of fraud reported while just in last month five cases of crypto fraud has been filed with the Security and Exchange Commission (SEC). it seems that hackers have more time in their hand during the bear market and trying to recover their losses.
How Crypto Investors Lost their Money
Initial Coin Offerings (ICOs)
ICOs are one of the most common ways to lose money. In the past two years, numerous ICO projects were launched just to collect funds. They do not have any intentions to build a viable project or to deliver what they have promised. On the other hand, there are several genuine ICOs which managed their projects poorly or set unrealistic goals. And investor lost their funds even when the fraud was not the initial goal.
Pump and Dump Schemes
Pump and dump groups usually use social media to attract investors to invest in certain coins to raise its price (pump) and then dump it on them at a later stage. These groups allow the price of the certain coin to build up by convincing the investors to buy more and the price of the coin reach to a certain level they sell all their coins and take the advantage.
Pyramid schemes or ponzi schemes are another big cause of investor fund lose. There are several companies which are involved in ponzi schemes so investors must avoid such companies or projects which encourage the investors to maximize profits. Usually, schemes which offer unrealistic incentives and massive returns are most likely scams.
Scammers create fake social media accounts such as Twitter accounts, Telegram accounts, email ids, and even fake websites to get personal information, private keys, and other information of crypto investors. The fraudsters use this information to stole the cryptocurrencies. To avoid such frauds, users should not share their secret information with anyone. Always remember to check the spelling of the website and security certificate of the website before providing any information on the website.
As cryptocurrencies maintain the anonymity of the users, so it is hards to track the scammers. To avoid the frauds and scams users have to be careful and aware. Being a crypto investor, it is important for you to understand how to spot scams and avoid them.