The crypto crash isn’t the only way the decentralized currency can lose its holders a lot of real money. Cryptocurrency is increasingly being used as part of scams, either as an integral part of the scam itself or simply as a way scammers want to get paid, according to a new report from the Federal Trade Commission (FTC).
The FTC says that 46,000 people reported losing more than $1 billion worth of crypto to fraud between January 2021 and March 2022, noting that that number is just those people who reported their losses to the FTC to have. It is likely that the actual number of people scammed and crypto losses is much higher since most victims do not report their losses to the FTC.
While this $1 billion figure may not reflect the true amount of money lost, it does show how much crypto fraud has increased: reported losses in 2021 were almost 60 times higher than in 2018. And in the first quarter of 2022 alone, losses were already about half what they were for all of 2021. A quarter of the money lost from reported scams is now in crypto.
Crypto already has a bad reputation as a playground for illegal purchases, hacker ransoms, and money laundering. Its increasing role in old-fashioned scams will not help enthusiasts argue that virtual currencies should play a bigger role in legitimate financial markets and banks. While President Biden signed an executive order enacting cryptocurrency regulations last March, it is unknown what those regulations will look like, when they will be implemented, or if they will do anything to prevent fraud.
Scam experts say the trajectory is alarming and is only likely to get worse.
“When criminals use a new method to steal people’s money, others follow,” Kathy Stokes, director of fraud prevention at AARP, which has her own resources related to crypto fraud, told Recode. “Combine this with the ‘legitimating’ powers of pro-crypto advertising and the move by 401(k) plan service providers to add this unregulated, highly speculative investment as an option for their plan participants, there’s no telling how many people will lose a will be a lot of money – which they probably won’t get back.”
More than half of that $1 billion came from investment-related scams: people promising to invest victims’ money in crypto for big returns. This type of scam is not new, even if the type of currency used in it is new, but the once-booming crypto market has likely made it easier to sell to victims. It certainly helped that until recently, when crypto prices skyrocketed, people regularly reported making huge sums of money. Combine that with the fact that most people don’t know much about crypto to begin with, and you have the perfect recipe for scams.
The second highest losses came from love scams, which appear to be related to investment fraud. Typically, someone gains the victim’s trust through a relationship and then tricks them into giving their money to an investment scam, or the “Casanova keyboard,” as the FTC colorfully calls it. The scammer then promises to invest the money – only for the scammer to disappear with the money.
Third place went to corporate and government identity fraud, which demands payment in crypto. Typically, someone receives a text, email, or phone call about a purchase or money they owe to a government agency. While the victim never made that purchase and does not owe that money, they are told they must pay to fix the problem. Increasingly, they are being told to make these payments in crypto, thanks to the widespread availability of crypto ATMs, making it quick and easy for victims to make these payments and making it harder for investigators to trace them.
Younger people (aged 20 to 49) were three times more likely to be scammed this way than other age groups, but the average amount of money lost to scams increased with age. This is also true for non-crypto scams in general: while the stereotype is that only older people fall for online scams, young people are actually more likely to fall victim. However, their losses are not as devastating as it is usually less money and it may be easier for them to recover financially.
Another reflection of time and medium, nearly half of the people who reported a scam said it came from social media — mostly Instagram and Facebook. It’s worth noting that the FTC is a US agency and platforms like Telegram and WhatsApp (where crypto scams also spread) are much more popular in other countries. That’s more than four times the number of crypto scams that started on social media in 2018. Overall, social media based scams (which encompass all forms of currencies, not just crypto) have surged in recent years.
This report is far from the only one highlighting how scammers are exploiting a loosely regulated and hard-to-trace decentralized virtual currency landscape. That could make it harder for consumers and regulators to sell that crypto can be a legitimate and useful financial tool. While many crypto enthusiasts point to the benefits of currencies not being controlled by banks and governments, this lack of control makes it easy for bad actors to take advantage. And it should make consumers more cautious about investing money in crypto, especially when even legitimate investments are losing money.
The FTC recommends staying away from investments that promise high returns, anything that requires payment in crypto, and not mixing online dating with investment advice. It also has its own crypto-related scam page.