How to spot a crypto scam

crypto scam

Crypto has hit the mainstream in Australia. You’re hearing about it in the office, down the pub, and it’s flooding your social feed.

The fact that few people truly understand how crypto works and what drives its value means it’s fertile ground for scammers and fraudsters.

The Australian Federal Police reported that crypto scams increased significantly during the COVID-19 pandemic, with The Australian Competition and Consumer Commission recording a 172 per cent increase in losses between January and November 2021, totalling $109 million – and they’re only the ones we know about.

What to look out for

The bottom line is that there’s no such thing as free money. So, if something sounds too good to be true, it probably is. Here are a few tell-tale signs to look out for:

  • Ponzi or Pyramid schemes: Will promise a regular return on investment when in reality, no real investment exists.
  • Crypto flipping: Will claim to double your money overnight if you pay an initial start-up fee to exchange coins for money.
  • Offshore brokers/investment sites: Companies promising big returns on a small deposits with little risk.
  • Large account release: After an initial investment, scam sites may show a large balance that they have accumulated by ‘investing’ or ‘trading’ an initial deposit. They’ll then ask for more money before they can ‘release’ the funds.
  • Anydesk: A broker or advisor asking you to install a screen sharing software, particularly ‘Any Desk’, is almost certainly a scammer. No genuine company needs to see your desktop screen.
  • Blockchain scam: Don’t trust anyone asking for a ‘release fee’ to give transfer a large amount of cryptocurrency they’ve ‘found’ on the blockchain.
  • Recovery services: Cryptocurrency transfers cannot be reversed. Any recovery service that asks for money upfront is a scam and should be avoided.

Protecting yourself and your investment

As with any investment decision – it’s essential to take the time to do your research, understand the market and the risks, and take steps to protect your investment.

Despite the fact that almost 1 in 5 Australians own some type of cryptocurrency, there’s currently little formal regulation of crypto trading in Australia.

This is likely to change following the October 2021 Senate Enquiry recommendations to set up more formal licensing and regulation. Regulation will encourage the establishment of digital assets businesses in Australia while also better protecting Australian consumers.

Following this, in what was a significant step towards integrating crypto-assets into Australia’s financial ecosystem, the corporate regulator, the Australian Securities and Investment Commission (ASIC), introduced licenses for crypto-asset holders.

ASIC also paved the way for Bitcoin and Ethereum-backed investment funds to begin trading on the Australian Securities Exchange (ASX) and the Chi-X exchange, providing investors with new and different investment options.

Achieving exposure to crypto assets via an exchange-traded fund is another way investors can access crypto via an institutional vetted platform without wearing the potential risks associated with directly holding crypto.

This article was previously published in Live Wire.

Dan Annan

Dan Annan

Dan is the chief executive officer of Cosmos Asset Management (CAM) and is responsible for leading the business operations and strategic direction. He has extensive experience in the local and global funds management industry, with over 15 years dedicated to Exchange Traded Funds (ETFs). Before CAM, Dan was head of BetaShares Institutional ETF Business for three years. Prior to BetaShares, Dan held various roles within the iShares ETF business for BlackRock in the US and Australia. His final US post focused on capital markets, where he worked with global banks to incorporate equity and fixed income ETFs into their business models to support trading and liquidity of the ETF ecosystem. Dan started his career with AllianceBernstein in 2002 with coverage of US and Canadian pensions, corporates, foundations and endowments. Dan holds a Bachelor of Economics from St. Lawrence University, New York.

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