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5 Bitcoin Scams to Avoid in 2022

By Samuel Becker · December 20, 2021 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

5 Bitcoin Scams to Avoid in 2022

Where there’s money, there are scammers—it’s a relationship as old as time itself. So it is no surprise that enterprising fraudsters started running cryptocurrency and Bitcoin scams almost as soon as the technology was born.

While Bitcoin scams and fraud may be relatively new, many of the more common rackets involving cryptos use age-old tricks to achieve their goals. Almost all types of fraud—be they Bitcoin scams or phishing attempts—are rooted in a schemer’s ability to gain a victim’s trust. It’s all about gaining someone’s confidence; that’s why they call them “con artists,” after all.

With that in mind, here are some of the more common Bitcoin and cryptocurrency scams. This list should give people a good idea of what to watch out for so that they can protect their assets, even before they start investing in crypto.

Common Bitcoin Scams to Avoid

1. Fake Cryptocurrency Exchanges

One way to attract potential crypto investors who are eager to get in on the action? Create a cryptocurrency exchange—even if it isn’t real. Yes, fake crypto exchanges exist, and in some cases, have been used to scam investors out of their money.

For fraudsters, it can be as easy as luring crypto investors with the promise of free bitcoin (or something similar) to get them to sign up for the exchange. Then, after making an initial deposit, victims may find that none of it was real, and they’ve been bilked out of their deposit.

As for how to avoid these fake exchanges? Sticking to the known, established crypto exchanges is a start. Think twice before creating an account with a new or unfamiliar exchange, and be sure to do some research to make sure it’s above board before making any moves. Refer to industry sites and newsletters, message boards and forums, and other reputable sources of information to find out more about an exchange’s credentials and reputation. And it never hurts to remember the advice our parents and grandparents have drilled into us from a young age: If it sounds too good to be true, it just might be.

2. ICO and Fake Cryptos

If you’re familiar with buying IPOs, then ICOs should ring a bell. ICO stands for “initial coin offering,” and is more or less the same thing as an IPO. It’s when a new coin or crypto makes its market debut.

That’s sure to attract some attention, right? That’s what fraudsters think, too. And it’s why ICOs, or ICOs promoting fake cryptos, are ripe for scams.

An ICO scam might work like this: A fake ICO can be teased, asking investors to pony up some cash to get in early. Money is exchanged, and then the ICO never occurs, and investors never get their money back.

These types of scams are common. So much so that the U.S. Securities and Exchange Commission (SEC) even published a website that simulates them, only to lead you to educational tools when you try to invest, instead of stealing your money.

As with any investment, it is a wise idea to do your research before putting money behind a crypto ICO. Try to find out as much as you can about the company in question—from sources other than itself or the tease that first grabbed your interest. And take advantage of tools like the ones provided by the SEC, to help educate yourself.

3. Social Engineering Scams

Many of the same tactics used to con people out of their cash or personal information are used in the crypto sphere, too. That includes things like hacking, social media scams, phishing attempts, and more.

For instance, crypto investors may get an email asking them to update their password or personal information on a crypto exchange—a phishing attempt, which is meant to trick users into providing their credentials. With that information, a fraudster could, potentially, gain access to an investor’s holdings and liquidate them. Always check the sender address on emails like this—one riddled with typos or oddball fonts is likely to be a fake. If possible, compare it to previous emails from the exchange that you know to be legitimate. Rather than clicking on any links from the email in question, go directly to your crypto exchange. There, you will be able to see if your password or personal email needs updating.

It’s important to be careful on social media, too. Imposter social media accounts may contact you and ask for investments or deposits, only to take your money and run. A good rule of thumb? Go with your gut, and don’t trust social media accounts—it’s all too easy for bots or others to create fakes.

4. Ponzi Schemes

Ponzi schemes are very similar to pyramid schemes. In essence, it’s a game of hot potato, with older investors being paid with the proceeds and investments from newer ones. It’s a common scheme in financial circles that has found its way to the crypto world.

The government has gone after Ponzi schemers in the crypto community, and that includes those that use bitcoin to lure in fresh investors. In fact, government regulators say that they root out and prosecute many Ponzi scheme cases every year, which includes those involving cryptocurrencies.

One typical red flag indicating a Ponzi scheme (or nearly any type of fraud): the promise of investing your money at no risk to you with the guarantee of huge profits. The truth is, with investing there is always a risk and there is no guarantee of returns.

5. Pump-and-Dump Bitcoin Scams

For investors who are even somewhat familiar with the stock market, “pump-and-dump” should be a familiar term—especially after the Gamestop headlines of early 2021.

A pump-and-dump scheme involves a number of traders or investors buying up an asset (say, Bitcoin for example, or a penny stock) which causes its value to increase. Then, with values high, they sell it all off—or “dump” it. Investors who bought in during the initial run-up are often caught underwater as a result.

Naturally, this same play can be run with cryptocurrencies. Government regulators, such as the U.S. Commodity Futures Trading Commission (CFTC), have warned that pump-and-dump schemes can be particularly effective in the crypto sphere, and warn investors to do their homework before making any investment decisions.

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The Takeaway

The crypto world can be risky if you don’t know what to watch out for. In that sense, investing in cryptocurrency isn’t much different from investing in other assets. Where there’s wealth or value of some kind, there will inevitably be bitcoin scammers, fraudsters, and con men (or women) who will try to find a way to get their hands on it.

By taking a few protective measures, people will be better able to keep their holdings safe. That includes researching a company before investing in it, and using some common sense—a good rule of thumb is that if something sounds too good to be true, it usually is.

It never hurts to be wary of anyone who contacts you asking for a deposit, to make a payment, or to otherwise send them money. If a crypto exchange or ICO is offering you a guarantee of some type, that’s another red flag. And if someone or a company is offering you something for free, tread very carefully. Businesses don’t often make money by giving things away.

Keeping your wits about you and avoiding anything that may seem sketchy should keep the majority of crypto investors out of harm’s way when it comes to scams—whether you’re new to the market, or a seasoned veteran.

If you’re looking to get started investing in crypto, SoFi Invest® offers crypto investing starting at $10. You can trade crypto from the mobile app, and rest assured knowing that your crypto will be kept safe from fraud or theft. or for a good option to keep your holdings safe, check out SoFi Invest, which uses a number of tools to keep your cryptos safe and sound.

Find out how to buy and trade crypto with SoFi Invest.

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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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1 SoFi will assess a fee for each crypto transaction outside of automatic direct deposit purchases. For more information, visit sofi.com/invest/buy-cryptocurrency.

You need both a SoFi Invest crypto account and a SoFi Invest active investing account to get access to no-fee crypto purchases with direct deposit. Active investing and brokerage services are provided by SoFi Securities LLC, Member FINRA/SIPC. Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

2 Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on June 30th, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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