The other Bitcoin rally: How scams are cashing in on the cryptocurrency fever

Bitcoin has risen 217%, outpacing any comparable investment in the stock market or fixed income. But the renewed popularity of the cryptocurrency has triggered a new wave of crypto scams and fraud, with investment losses related to cryptocurrencies rising to $3.94 billion in 2023, according to the FBI. This represents a 53% rise compared to last year, and the outlook for 2024 is even worse.

“With every price increase there are periods of increased interest and, therefore, an increase in the number of bad actors looking to take advantage of the situation,” says Javier Garcia de la Torre, director of Binance Spain and Portugal, who recommends the public be alert to any suspicious-sounding offers.

Industry sources explain that these scams can be designed to reach a specific audience. In Spain, for example, fraudulent schemes use the images of high-profile figures such as Amancio Ortega, the founder of Inditex, which owns fashion labels such as Zara. There is a lot of money to be main. In the United States, the Better Business Bureau estimates that the average scam victim loses $3,800.

Experts warn of the rise of WhatsApp and Telegram groups, where supposed assistants at large investment platforms advise individuals who are interested in buying cryptocurrencies. This type of scam is not particularly technically sophisticated, but they can confuse people with false advice, link to fake platforms and encourage them to buy highly volatile coins. For example, in these communities supposed analysts discuss how Bitcoin’s next halving — an automated process that reduces the reward for mining Bitcoin blocks every four years — may push the coin above $100,000. However, these alleged experts are fake, with names taken from the DC universe, such as Robert DuBois, the fictional criminal who tries to kill Superman with a kryptonite bullet.

Consulting firm Chainalysis warns that pump and dump schemes are big business. Through newly created coins that are easy to manipulate, fraudsters heavily promote a token to spur a price increase, then dump their holdings for profit. In 2023 alone, at least 370,000 tokens were launched on Ethereum, and less than 14% achieved more than $300 of liquidity, the firm warns.

Other crypto scams may play on a person’s emotion. According to data from Chainalysis, romance scams are one of the fastest growing forms of crypto fraud, increasing 85-fold since 2020. The scheme normally begins on dating apps, where scammers spend weeks or months gaining their victim’s trust. They then use various tactics to try to get the victim to hand over their money, such as inviting them to take part in a joint crypto investment.

García de la Torre, however, stresses that there is a “false perception that fraudsters are at ease in the crypto world and that is a lie: this technology allows everything to be recorded.” The Binance director stresses that, despite the high figures of crypto fraud, only 0.34% of crypto transactions are of an illicit nature.

Who wants to be a millionaire?

The rise in crypto scams does not mean that people aren’t getting rich from Bitcoin’s record-breaking rally. Kaiko Research estimates that Bitcoin’s recent highs have been creating around 1,500 new “millionaire wallets” every day. However, the consultancy firm warns that this figure is far from the numbers of 2021, when more than 4,000 crypto wallets were exceeding $1 million every day.

The industry hopes that the new exchange-traded funds (EFTs) approved in January, which were initially underestimated by the market, will help stop the scams. The expectation is that given, the ease of trading EFTs, as well as their low management costs, investors will remain with familiar and secure investment platforms, which will limit their exposure to potential scams.

However, the success of EFTs also has a downside. There are no other listed securities with these characteristics in the market, and any possible confusion in this regard could open the door to new crypto scams.

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