7
February
2024

How to spot a Crypto scam

Crypto, with its tantalising tales of enormous profits, screenshots of soaring charts, and claims like "I just made £1,000 in 10 minutes" is the new frontier for deceit

Lauren Steel-Smith | Commercial Litigation Associate

In a world fuelled by social media’s glitzy allure, the promise of a lavish lifestyle and quick financial gains often takes centre stage.

If you caught my last article on TikTok investment scams, you’ll know that there’s one thing I absolutely despise – scammers. And unfortunately, they’ve found a playground in the realm of cryptocurrencies.

Crypto, with its tantalising tales of enormous profits, screenshots of soaring charts, and claims like “I just made £1,000 in 10 minutes” is the new frontier for deceit. Some may scoff and roll their eyes, dismissing it as an overreaction or a resistance to modern trends, but as a litigator, someone who is naturally risk-averse and distrusting, I’m here to shed light on a dark reality.

Did you know that the average lifespan of a cryptocurrency is a mere 15 months? The chief culprit behind their demise is fraud, with ‘lack of demand’ ranking as the second-most significant factor.

What is a crypto scam?

You may be familiar with the concept of insider trading, a term often associated with traditional stock markets. Think back to the Wolf of Wall Street – manipulating stock prices through privileged information. But how does insider trading apply to the world of cryptocurrency, where there are no tangible businesses or products?

The answer lies in the ease of creating a cryptocurrency. Platforms like OpenSea and Rariable empower users to craft their own coins and tokens, often requiring no coding experience.

Imagine a scenario where an individual creates a worthless coin, urging a select group, perhaps friends or colleagues, to invest in it. This orchestrated buying frenzy artificially inflates the coin’s value, enticing unwitting participants to join the hype. Then, at a strategic moment, the orchestrator commands the group to sell, causing the coin’s value to plummet. The end result? People left out of pocket, and effectively “hoodwinked”.

It’s crucial to emphasise that individuals participating in these “select groups” may be entirely unaware that their actions are ethically questionable. From their perspective, they are simply investing a small amount and expecting modest returns. The real awareness of the harm being done lies with the person orchestrating the scheme from the top, raking in thousands at the expense of the select group’s investments as well as the bone fide investors.

Ground-level Crypto scams

Unlike the high-profile scandals that rocked traditional stock markets, many cryptocurrency scams occur at ground level, involving everyday individuals, rather than financial moguls found on Wall Street or in The City.

The simplicity of creating coins and tokens on various platforms facilitates these fraudulent activities, making it accessible to anyone with a deceptive agenda.

So, the next time you come across enticing crypto promises on your feed, remember that not everything that glitters is gold. Be cautious, question the hype, and don’t let the allure of quick wealth blind you to the potential pitfalls that lurk beneath the surface of the crypto world.

Transparency and regulation: introducing UK Crypto regulation

As we navigate the enticing yet treacherous terrain of cryptocurrency, it becomes increasingly evident that the lack of regulation poses a significant threat to unsuspecting investors. The stories of pump-and-dump schemes, fuelled by the ease of creating coins and tokens on various platforms, underscore the urgent need for enhanced oversight.

In an era where the virtual realm intersects with financial reality, it’s time to demand greater accountability. The creation of cryptocurrency should not be a cloak-and-dagger affair. We must push for regulations that require transparency in revealing the identity of creators and the timeline of investments leading up to the coin’s release.

Asking for basic information, such as the identity of the minds behind a cryptocurrency and the dates of investments versus the coin’s release, is not an imposition; it’s a safeguard against potential fraud. Just as we scrutinise traditional financial transactions, the crypto world should be subject to scrutiny that ensures the protection of investors, big and small.

Share this