The volatile and unregulated market of cryptocurrency can be advantageous for traders, but also risky of scams and frauds. So how do we identify scams and avoid cryptocurrency frauds?

The popularity of cryptocurrency has gone up in the last decade, making it possible for traders to gain massive profits from their investments. Dozens of new cryptocurrencies emerge each month alongside technology advancement and improved trading platforms.

One of the unique characteristics of crypto is that the price is driven entirely by the supply and demand of the market, which is the opposite of the value of fiat currency that is controlled by the central government of each country. As a result, cryptocurrencies are subject to far less regulation compared to regular trading assets such as forex, stocks, bonds, etc.

Such condition can be seen as a double-edged sword. While the volatile crypto market with little regulation can lure a broad pool of traders to invest and open opportunities to expect more gains, it can also attract scammers looking for a fast buck. It won't take long for you to realize that the crypto market is not completely protected or free of scams. Most of the scams are basically just a modern version of traditional scams.

Avoiding Cryptocurrency Frauds

There's the typical Ponzi scheme where scammers try to create an illusion of big returns in a convincing investment but turn out only using the money from new investors to pay old investors. Other fraudsters use social media and emails to send links to fake websites or manipulate the traders into sharing their private keys. Some of them would claim that they come from a legitimate company before asking the traders to give their personal information or passwords. Some straight-up hackers break into people's digital wallets and take their money.

Based on the statement from the North American Securities Administrators Association, a non-profit organization that represents securities and regulators in the United States, Canada, and Mexico, cryptocurrency fraud is one of the top threats for investors in 2020. Read further to learn how to identify and avoid cryptocurrency frauds.


Understand the Risk

The first thing to do is to be aware that there are potential scams that can hit you anytime. Even if you're not being scammed, there's a chance to lose money in the speculative and volatile crypto market. As you can probably tell by the fluctuation in the forex market, the value of crypto coins may go up and down extremely in a very short time, so be prepared.


Know the Warning Signs

There are at least two things that you should be aware of. First, if someone you don't know sends you a private message or email out of the blue about a cryptocurrency trading opportunity, then it's most likely a scam. And second, if you come across a company that claims they can provide you with a safe investment with little to no risk and promise a high return, be very cautious because it's a typical cryptocurrency fraud.


Resist the Pressure to Buy

Assess the market carefully before you decide to take action. Sometimes, the market condition may seem like it provides a good opportunity to enter. But if you're being reckless, you can be subject to scams because some of them are only trying to create a false signal of urgency in a supposedly red-hot cryptocurrency to make people buy.


Do Your Homework and Research

It's very crucial to always do a background check of any company where you place your money. Scammers can easily disguise themselves as a financial company and claim to have served many people, but the truth is usually far from that. In some cases, the company itself may not exist in the first place.


Read the Agreement Carefully

Unlike banks or credit card companies, digital wallet providers may not be responsible for refunding your money if it's stolen. So even if you're registered in a highly trusted digital wallet provider, it's important to read the terms and conditions before you decide to register or give them your credit card information and other personal details.


What You Shouldn't Do

  1. Don't invest in cryptocurrency trading if you don't know how it works.
  2. Don't buy cryptocurrencies based on anonymous tips that you find on random chat rooms or social media.
  3. Don't invest more money than you can afford to lose. As we have mentioned earlier, crypto investments are subject to fewer regulation protections compared to traditional financial products. That means you have to be prepared for the risks that come with it.
  4. Don't send money to an individual retirement account labeled as "IRS approved" or "IRA approved". Some self-directed IRAs do allow investment in digital currencies, but the IRS does not approve or review IRA investments.
  5. Don't tell anyone about your passwords or private keys. Keep them in a secure place.



It is unfortunate that there are still lots of people trying to exploit the unregulated crypto market to steal money from investors. The crypto trading business itself is already risky because of the highly volatile and unregulated market, so scams and frauds would make it more dangerous to newbies.

It's very risky to walk in there not knowing about this issue and how to avoid each scam type. Thus, it's important to learn about the current trend and stay updated. If you can spot a scam, you can stop a scam. Remember that crypto trading can indeed bring you great profit if you know how to do it, but it is never free of risk. Always stay alert and trade safely. Choose your exchange carefully, and practice safe trading whenever you're about to enter the market.