How to Spot a Cryptocurrency Scam: A guide for investors

Cryptocurrency has revolutionised the financial world, offering new opportunities for investment and innovation. However, with the rise of digital currencies comes the inevitable growth of scams targeting unsuspecting investors.

Scammers are becoming increasingly sophisticated – and it’s vital that people learn how to spot the warning signs before falling victim to fraudulent schemes.

In this article, we explore the most common red flags to help you identify potential cryptocurrency scams and protect your savings and investments.

1. Promises of Guaranteed Returns

One of the most common tactics used by scammers is the promise of guaranteed returns.

Legitimate investments, whether in traditional markets or cryptocurrency, come with risks — prices can rise or fall. No financial investment can ever guarantee specific future returns.

So if you come across an ad for cryptocurrency which claims that you will “definitely” make money or provides a “guaranteed” percentage of profit, this should immediately raise suspicion. These promises are often used to lure in inexperienced investors with the prospect of easy profits. Always remember: if it sounds too good to be true, it probably is.

2. A Poor or Non-Existent Whitepaper

A whitepaper is a document explains the project’s vision, technology, and how the cryptocurrency is designed to function within its ecosystem. It is a crucial component of any legitimate cryptocurrency project, providing transparency and insight into the development team’s goals and strategies.

If a cryptocurrency lacks a whitepaper, or if the whitepaper is confusing, vague, or overly technical without clear explanations, this is a significant warning sign. Scammers often fail to provide a coherent whitepaper because they lack a real, functioning project.

Before investing in any cryptocurrency, always take the time to thoroughly review the whitepaper. If you can’t understand the core principles of the project, it’s best to avoid investing.

3. Excessive or Aggressive Marketing

While all businesses engage in marketing to promote their products or services, excessive or aggressive marketing can be a red flag for a cryptocurrency scam. Fraudsters often rely on flashy online advertisements, paid influencers, and even offline promotions to attract investors quickly. This is typically a sign that they are trying to raise money as fast as possible before the scam is exposed.

If the marketing efforts of a cryptocurrency seem over-the-top, with extravagant claims or guarantees, try to dig a bit deeper. Authentic projects tend to build their reputation gradually, often relying on organic community support and transparent communication. Excessive promotional tactics without substantial evidence or a real track record should be a cause for concern.

4. Unverifiable Team Members

Trust is essential in any investment, and knowing who is behind a project is key to establishing that trust. In legitimate businesses, it’s usually easy to find information about the team members — detailed biographies, professional histories, and active social media profiles that validate their experience.

When the people behind a cryptocurrency project are anonymous or their identities cannot be easily verified, this is a serious red flag. Scammers often hide their identities to avoid accountability once they have defrauded investors. Before investing, make sure you can confirm the team members’ credentials and ensure they have a reputable presence in the industry.

5. Promises of Free Money

Any investment opportunity that promises “free money,” whether in cash or cryptocurrency, should be treated with extreme skepticism.

Scammers often use this tactic to entice victims by offering bonus tokens, free crypto, or other financial incentives. These offers are designed to appear as a “risk-free” way to make money, but in reality, they are just bait. Once you take the offer, scammers can manipulate you into investing more, only to disappear once they’ve collected enough funds. Legitimate investments require research, strategy, and often, patience—there is no such thing as a free, especially in the world of crypto!

Stay vigilant

Cryptocurrency offers many exciting opportunities, but it also presents risks, especially in a relatively new and unregulated market. To safeguard yourself from falling victim to scams, it’s essential to stay informed and vigilant. Pay attention to the warning signs: avoid offers of guaranteed returns, verify the legitimacy of whitepapers, be wary of excessive marketing, and ensure that the project team is transparent and credible. Lastly, steer clear of any investment that promises free money—this is almost always a trap.

By educating yourself and taking the time to conduct thorough research, you can protect your assets and make more informed decisions in the world of cryptocurrency. Remember, caution and due diligence are your best defenses against potential scams.

Crypto fraud claims

According to new regulations, if banks do not act in their customers’ best interests to prevent financial loss, they’re neglecting their duty of care and should reimburse them. So remember, if crypto fraud has caused you financial losses, you can complain and get financial redress from your bank.

Download the Resolver Guide to Bank Fraud complaints

Our free guide explains the process of complaining to your bank about fraud – and how to go to the Ombudsman if you feel they have treated you unfairly and owe you financial redress.

Make a crypto scam claim

If the process of complaining yourself is putting you off pursuing fair treatment, our recommended provider, Fraud Helpline, could pursue a bank fraud claim on your behalf – saving you time, energy and expensive legal costs later on.

If you have any thoughts on this topic, or any other consumer issues you would like us to cover, feel free to get in touch with us at support@resolver.co.uk.