What You Need to Know
- A quick look at the most common scams and how to avoid them.
- One scam capitalized on the hit TV show “Squid Game.”
- Remember that there is no FDIC or SIPC to protect you.
The realm of digital assets is new, confusing, famous for making people rich — and often unregulated. In other words, it’s a perfect setting for scams.
Here’s a quick look at the most common scams, and how to avoid them.
The Rug Pull
A new coin, token or platform appears, makes big promises, gets lots of publicity, attracts investors, and then vanishes.
A recent example was a new cryptocurrency whose promoters capitalized on the hit TV show Squid Game. After quickly rising to $2,860, the Squid coin fell to near zero in mere hours. The coin’s anonymous creators drained liquidity from the product, driving its value down, and exited with $3.3 million of investors’ money.
What Your Peers Are Reading
Watch for new coins that are getting lots of hype.
Pump and Dump
Just like Stratton Oakmont, Blinder Robinson, First Jersey Securities and other notorious penny stock brokerage firms of the 1970s and 1980s, “pump and dump” swindlers thrive in the crypto world, too.
In this trick, crooks buy (and even sometimes invent, a la the rug pull above) a near-worthless coin, then pump up excitement about it, causing unwary investors to buy the coin. The crooks keep the excitement going by making additional buys, and soon the price is up dramatically. At that point, the crooks dump their holdings and stop promoting the coin. The ensuing vacuum causes the price to collapse, leaving everyone else with a worthless asset.
Pump and dump schemes often involve influencers and celebrities who are paid to endorse the new coin. Their credibility helps give the scam credence — until it’s too late. If a coin or token is being promoted heavily, ask yourself if a scam might be underway — before you invest.
Phishers send you an email announcing an incredible investment opportunity. If you click on the link, you’ll be taken to a website that looks legitimate — and asks you to send money. After you do, the website disappears. Sometimes, the crooks don’t even want your money. Instead, they merely want you to fill out an online form that gives them your personal information (such as your bank account number). With that data in hand, they steal your identity and your accounts.
A new variation uses “air drops” as bait. Digital asset platforms sometimes reward investors with gifts called air drops, which are free tokens or coins sent directly to investor wallets. Scammers unaffiliated with the platform can also air-drop free tokens into user wallets — but they’re a Trojan horse, not a gift. If you interact with the tokens, you could be giving the hackers access to your wallet, enabling them to drain your holdings.