Beware of Cryptocurrency Trading Scams in 2024

Cryptocurrency trading is the new Wild West, and everyone’s out to strike gold. But hold your horses—where there’s loot, there’s always a bandit not far behind. We’re talking about crypto scams that have swiped billions from unsuspecting traders.

The potential to make big gains by trading cryptocurrencies has sparked huge interest from investors. But criminals are also drawn to cryptocurrencies, as their pseudonymous nature makes illicit activities harder to track.

This combination of factors has led to an explosion of scams in the cryptocurrency trading world designed to separate naive investors from their money.

This page gets deep into the dark corners of crypto trading scams. We’ll break down their sneaky tactics and give you the lowdown on how to steer clear, so you don’t end up losing your shirt. Again knowledge is your best weapon here.

Cryptocurrency Pump and Dump Schemes

A classic scam that has plagued stock markets for decades has now migrated over to cryptocurrency trading – the pump and dump scheme.

Here is how cryptocurrency pump and dumps work:

• A group of scammers buy a low market cap cryptocurrency cheaply
• They spread fake news and manipulate social media to “pump” up enthusiasm for the coin
• Unwitting investors see the surge in price and activity and rush to buy the coin
• The scammers then dump their coins and cash out, leaving investors holding worthless bags

Cryptocurrency pump and dumps are organized in private groups on apps like Discord and Telegram. The organizers first accumulate the target coin, then notify the group members to buy at a specific time.

Once the coin pumps, the organizers quickly sell to make a profit while leaving group members scrambling to sell their coins before the inevitable crash.

The SEC recently charged 11 individuals for conducting pump and dump schemes. One Telegram group called “ATM Cash Withdrawl” allegedly gained $4 million through these manipulations.

How to Avoid Crypto Pump and Dumps

• Don’t buy into unknown coins that suddenly spike for no reason
• Ignore tips from random social media users trying to pump coins
• Stay away from groups that coordinate P&D attacks
• Stick to larger, more liquid cryptocurrencies

Fake Cryptocurrencies

Nowadays there are thousands of legitimate cryptocurrencies traded on various exchanges.

But also there are untold numbers of fake cryptocurrencies devised by scammers to fleece unsuspecting investors.

Some ways scammers create and promote fake cryptocurrencies:

• Copying code from legitimate coins and creating “forks”
• Making flashy websites with bogus white papers
• Paying celebrities for endorsements
• Bribing exchanges to list their coins
• Buying likes/views/accounts on social media

A major exit scam involved the QuadrigaCX exchange in Canada. The founder supposedly died and $250 million in client funds stored offline went missing. It was later revealed that no offline funds existed, and the deceased founder had created fake accounts to trade nonexistent funds – a complete scam.

Other fake cryptocurrencies like Prodeum lured investors in using buzzwords like “blockchain” before pulling their websites and disappearing with people’s money.

Avoiding Fake Coins

• Vet any new coins thoroughly before investing
• Watch out for coins with no usable product
• Check community channels for legitimacy
• Be wary of “free money” promises
• Use exchanges that thoroughly vet coins before listing them

Cryptocurrency Phishing Scams

Phishing remains one of the biggest threats in the world of online security. Cryptocurrency users are prime targets for phishing attempts.

Some ways crypto phishers try to trick users:

• Sending emails requesting users click links to verify account info
• Creating fake exchange login pages to steal user credentials
• Impersonating technical support and asking for remote computer access
• Using phone calls, chats or texts pretending to be from exchanges

A common tactic is to send an email warning about a (fake) security issue and provide a link for users to “resolve” it. The link goes to a convincing but fraudulent site where users are prompted to input their private keys or recovery phrases, allowing the scammer to steal funds.

How to Avoid Phishing Scams

• Verify sender addresses – exchanges won’t use Gmail/Outlook/etc
• Check URLs closely – scammers use slight misspellings
• Never input credentials on unsolicited links
• Always use bookmarks or type URLs manually
• Use authenticator apps instead of SMS or email for 2FA
• Never share keys or phrases publicly or privately

Fake Cryptocurrency Exchanges

Hundreds of cryptocurrency exchanges now exist, but not all are legitimate. Scammers have become adept at making convincing exchange websites to ensnare traders.

Some warning signs of fake exchanges:

• No HTTPS or SSL encryption on the site
• Missing links across site pages
• Limited payment options – credit cards but no crypto deposits
• Minimal trading volume
• No information about the company/owners

Scammers lure in victims by listing improbably high rates of return on trades and investments. Users deposit funds, but when they try to withdraw their balance, they are unable to and the site disappears.

Over $16 billion has been lost to fake exchanges according to estimates. Evolution, a fake exchange, pulled an exit scam and stole $12 million from users in 2014.

Avoiding Fake Exchanges

• Verify exchange on relevant forums before using
• Check for proper registration and licenses
• Review the exchange’s security and encryption
• Test withdrawals and transfers before depositing large amounts
• Be wary of outrageously high advertised returns

Check our list of tested and trusted crypto exchanges.

Cryptocurrency Ponzi Schemes

Fraudsters are also getting into cryptocurrencies by operating Ponzi schemes – convincing users to invest BTC or ETH with promises of huge guaranteed returns. There are no real investments taking place. Instead, payouts to earlier members are funded by fresh victims investing at the top of the pyramid.

Warning signs that a crypto investment is a Ponzi scheme:

• Offering consistent interest or fixed returns
• Requiring referring new investors to profit
• Not providing detailed information on their business model or trading strategies

The alleged OneCoin Ponzi scheme defrauded investors out of $4 billion by claiming to be a revolutionary cryptocurrency. In reality, they were not using blockchain technology and there was no ability to trade their coin on exchanges.

Avoiding Crypto Ponzis

• Be wary of “too good to be true” returns
• Check the backgrounds of founders/leaders
• Check if investment firm is properly licensed and regulated
• Ask detailed questions about how they generate returns
• Watch for referral/affiliate commissions

Cryptocurrency Exit Scams

An exit scam is when the creators of a cryptocurrency or business take investors’ money and disappear, leaving users with worthless coins or inaccessible accounts on an insolvent platform.

Some big exit scams:

• Mt Gox – Early Bitcoin exchange. Lost/stole $460 million in user funds
• Bitconnect – Bitcoin lending platform promising 1%+ interest per day. Crashed in 2018 (we uncovered the scam in 2019 here)
• PlusToken – Wallet app claiming to pay dividends. Vanished with $2.9 billion

Key warning signs of exit scams:

• Company without proper registration or licenses
• Unqualified or anonymous team members
• Missed deadlines and delays
• Refusal to submit to audits
• Changing white paper objectives

The ability to pull off an exit scam is one of the (unfortunate) advantages cryptocurrency scammers have – the pseudoanonymity of crypto makes perpetrators harder to trace.

Avoiding Crypto Exit Scams

• Thoroughly research companies before investing
• Transfer funds out of exchanges/wallets after purchases
• Use hardware wallets where you control keys
• Cash out profits frequently
• Monitor leadership’s commitment to their roadmap

Unregulated Cryptocurrency Brokers

Cryptocurrency brokers provide trading services, promising big profits through margin trading and derivatives using platforms like eToro and Skilling.

However, many brokers targeting crypto traders are completely unregulated, increasing the risk of scams:

• Excessive leverage can wipe out accounts with even small moves
• Brokers can charge outrageous hidden fees
• Traders have no protections against fraud
• Unlicensed brokers operate anonymously from overseas -Manipulation or rigged trading through liquidity providers

UK brokers Creation Capital and Alpha Financials stole £16 million from customers in an alleged Ponzi scheme.

Avoiding Unregulated Brokers

• Verify brokers are licensed by reputable regulators
• Check if the broker handles assets directly or uses third party custodians
• Be wary of brokers promising improbably high and consistent returns
• Start with small amounts to test withdrawal processes
• Read reviews carefully checking for red flags
• Avoid brokers who cold call with trading “opportunities”

Cryptocurrency Market Manipulation

Illiquid cryptocurrency markets are vulnerable to manipulation through tactics like:

• Spoofing – placing fake large orders to influence price movements
• Wash trading – buying and selling between accounts creating fake volume
• Pump and dumps – groups artificially inflating prices as described earlier
• FOMO – spreading rumors or hype to spark fear of missing out

These tactics allow bad actors to liquidate positions at inflated prices.

A report found significant wash trading volume on unregulated exchanges like OKEx and Huobi, distorting true crypto asset prices for traders.

Avoiding Market Manipulation

• Favor regulated exchanges over unregulated platforms
• Watch for sudden price spikes on no news
• Don’t fall for “pump and dump” groups
• Avoid trading based on rumors or hearsay
• Use tools to monitor exchange transparency

Cryptocurrency Fake News & Celebrity Scams

Scammers know fabricated celebrity endorsements can entice gullible crypto traders.

Fake news articles are created promoting non-existent partnerships between cryptocurrency projects and celebrities or major companies.

Hackers also compromise the Twitter accounts of celebrities to tweet phony cryptocurrency giveaways in exchange for an upfront “gas fee”.

Steven Seagal recently had his likeness used to promote a fake ICO that raised $75 million from investors.

Avoiding Fake News & Celebrity Scams

• Verify partnership announcements on official company sites
• Search for reputable news corroborating stories
• Check accounts spreading rumors for credibility
• Watch for verified account badges on social media
• If it sounds too outlandish, it’s likely untrue

Cryptocurrency Impersonators and Giveaway Scams

Scammers will also impersonate official administrators of cryptocurrencies or exchanges on social media to scam users.

They direct message account holders claiming they have “won” cryptocurrency and requesting funds to cover fake fees or taxes to receive the payout.

Hackers have compromised verified Twitter accounts of crypto companies like Chiliz to impersonate customer support and trick users into handing over wallet keys and passphrases.

The most common giveaway scams involve impersonating celebrities or influencers and asking for an upfront payment to receive a larger cryptocurrency payout.

Avoiding Impersonator Scams

• Verify blue checkmark and username match legitimate accounts
• Ignore direct messages about giveaways or prizes
• Never send cryptocurrency to participate in a “giveaway”
• Use 2FA and unique, complex passwords for accounts
• Report scammers and impersonators to platforms rather than engaging

Fake Cryptocurrency Mining Operations

As cryptocurrency mining became increasingly difficult for individual miners, some companies offered cloud mining services – miners pay to rent shared computing power to process transactions and earn crypto rewards.

However, many cloud mining companies turned out to be fake operations designed to steal funds:

• Websites with fake testimonials and fabricated profitability metrics
• Claims of crypto mining farms with no evidence they exist
• Refusal to allow audits of mining operations
• Disappearing after collecting upfront payments from users

China-based cloud mining companies HashFlare and AnubisCloud both suddenly went offline with no payouts after collecting millions in deposits according to reports.

Avoiding Fake Mining Scams

• Prefer established mining companies with transparent mining fleet info
• Check forums to ensure regular payouts to customers
• Review sites for evidence of real data centers/hardware
• Start small rather than large upfront deposits
• Use mining profitability calculators to estimate returns

Cryptocurrency Investment Scams

From fake hedge funds to phony private equity firms, scammers seeking larger sums have turned to fictitious cryptocurrency investment companies.

They offer proprietary trading bots and algorithms to generate huge profits trading crypto. Minimal documentation and too good to be true returns are common warning signs.

Cases like Santino Amaro’s $7 million Bitcoin investment scam show that even regulated financial professionals use cryptocurrencies to defraud investors through ponzi schemes.

A common tactic is using one larger investor’s funds to pay dividends to earlier victims to maintain the illusion of returns and prolong the scam.

Avoiding Investment Scams

• Ask for detailed information on trading strategies
• Require documented audits of trading performance
• Check licenses and registrations in your state
• Review personnel backgrounds on FINRA BrokerCheck
• Start with small amounts before reinvesting profits
• Withdraw dividends regularly

Malicious Cryptocurrency Apps

Thousands of cryptocurrency apps have entered the marketplace, and hackers have taken advantage by creating trojanized wallets and trading apps to steal funds.

Tactics include:

• Fake updates – pushing malware via updates to legitimate apps
• App impersonators – creating copycat apps of popular services
• Keyloggers – tracking typing to steal passwords and keys
• Screen overlays – tricking users into sending to scammer addresses

A fake MyEtherWallet app on iOS stole $500,000 in coins by switching addresses before users confirmed transactions.

Avoiding Malicious Crypto Apps

• Download apps only from official stores or sources
• Check number of installs and reviews before downloading
• Run antivirus scans on devices
• Use 2FA for accessing wallets and exchanges
• Double check addresses when sending transactions

Fraudulent Cryptocurrency Trading Bots and Signals

Automated cryptocurrency trading bots that promise high returns are another common scam targeting crypto traders.

Many advertise high winning percentages and swing trading profits but turn out to be fake or deliberately designed to lose money:

• Fake or purchased testimonial and social proof
• Affiliate referrals often pay higher commissions
• Withdrawals of funds or profits extremely difficult
• Technical glitches and freezing account balances
• Leverage to wipe out accounts

Cybersecurity firm Group-IB found 70% of crypto bots linked to fraud, with $470 million lost. Most were created only to look profitable in order to collect deposits from victims.

Avoiding Crypto Bot Scams

• Extensively backtest trading strategies before use
• Check forums/groups for user experiences
• Start with small amounts to test withdrawals
• Require transparency on strategy rules
• Understand how the bot limits losses
• Monitor performance closely, prepared to turn off bot if issues arise

Check our list of tested and trusted automated crypto bots.

How to Spot Cryptocurrency Scams as a Crypto Trader

After reviewing the many ways scammers target cryptocurrency traders, how can you avoid these pitfalls? Here are key tips to trade crypto safely:

• Educate yourself – Continue learning about common crypto scams to spot red flags quickly
• Verify sources – Fake sites, accounts and announcements designed to manipulate abound
• Check credentials – Avoid unregistered, anonymous crypto exchanges, brokers and investors
• Start small – Test withdrawals and monitor returns before adding more funds

Studying past crypto scams provides invaluable lessons. Being wary of unbelievable claims and doing due diligence is the key to trading cryptocurrencies while avoiding the scammers.