You can hardly pick up the financial section of the newspaper or visit a financial website without seeing a headline about Bitcoin or another cryptocurrency. As I write this column, these articles are on one website:
- “El Salvador Becomes First Country to Officially Adopt Bitcoin as Legal Tender.”
- “China’s Qinghai Province Has Ordered All Crypto Miners to Shut Down.”
- “Aussie Millennials Favor Crypto Over Real Estate.”
The FTC says “there’s a Wild West vibe to the crypto culture, and an element of mystery too.” Investopedia says some people compare cryptocurrencies to the fad for Beanie Babies in the 1980s. It says others draw analogies to Tulipmania, a 17th century speculative bubble in which the average price of a single tulip exceeded the annual income of a skilled worker.
Crooks exploit the headlines to make their scams more believable. According to a new FTC report titled “Cryptocurrency buzz drives investment scam losses,” nearly 7,000 people reported losses of more than $80 million to the FTC in cryptocurrency scams from October 2020 to May 2021. That was about twelve times the number of reports and almost 1,000 percent more in losses compared to the same time period a year earlier. Only a small percentage of scam victims report their experience, so the actual numbers are much higher.
Some victims were lured to bogus websites offering the opportunity to invest in cryptocurrencies or in mining them. The websites used fake testimonials and cryptocurrency jargon to appear legitimate. Some even made it seem like the person’s investment was growing, but when they tried to withdraw their money, they couldn’t.
In “giveaway scams” supposedly sponsored by celebrities, people sent in cryptocurrency based on the promise that the celebrity would multiply it. Elon Musk, the CEO of Tesla, has been tweeting about Bitcoin and other cryptocurrencies a lot lately, causing their values to go up or down depending on whether his comments were favorable or unfavorable. People reported losing over $2 million to crooks impersonating Musk.
Romance scams in which crooks establish a relationship with a victim online and then request money for some reason have taken on a cryptocurrency twist. Many people reported to the FTC that their new love started chatting about a hot cryptocurrency investment opportunity in which the victim ended up being defrauded.
The FTC report found that people ages 20 to 49 were five times more likely than older age groups to report losing money in a cryptocurrency scam; those in their 20s and 30s were the most vulnerable. But when people older than 50 lost money, the median loss was much higher – $3,250 vs. $1,900 for all victims.
The FTC and BBB offer these tips to avoid becoming the victim of a cryptocurrency investment scam:
- Cryptocurrencies aren’t backed by a government or central bank.
- Holdings in online “wallets” are not insured by the government like U.S. bank deposits are.
- A cryptocurrency’s value can change constantly and dramatically.
- Nothing about cryptocurrencies makes them a foolproof investment.
Scams of all kinds in which victims are instructed to pay using Bitcoin are also on the rise. If you’re asked to pay using Bitcoin to claim a prize, pay back taxes, get a government grant, or for any other strange reason, it’s a scam.
Randy Hutchinson is the president of the Better Business Bureau of the Mid-South. Reach the BBB at 800-222-8754.