Although it is developing, the cryptocurrency sector still resembles the Wild West of investing. Even the most excellent and recognized cryptocurrencies, like Bitcoin and Ethereum, are well known for their instability.
For instance, the bitcoin price has declined by nearly 70% since reaching its peak in November 2021.
But once you dive beneath the cryptos widely mentioned in the financial news, things get much wilder. In reality, more than 19,000 cryptocurrencies exist, many of which have names that few people have even heard of, according to CNBC. How do you tell which cryptos are genuine and which could be scams in this kind of surroundings?
Pump And Dump Schemes
In a pump-and-dump method, fraudsters first stock up on an anonymous cryptocurrency that goes undetected. Then, they launch an aggressive marketing campaign to promote the cryptocurrency using a mix of blog articles, social media posts, and financial “press.”
The con artists constantly promote the price increases in an attempt to get more and more investors to take part as more buyers become aware of it and start driving up the price. Unaware investors are left holding the bag when the cryptocurrency eventually falls in value after the scammers dump all of their coins on the open market once it has dramatically increased.
Naturally, you should exercise caution if you receive a solicitation to purchase an anonymous cryptocurrency whose value has recently increased.
Scammers can use false websites to scam ignorant cryptocurrency investors. This works best with cryptocurrencies that have received media attention but are still pretty much unknown.
Scammers will build websites that look authentic in an attempt to persuade consumers to spend money there. While some con artists appear to be official cryptocurrency exchanges, others imitate the development sites of specific cryptocurrencies.
Making sure you only use secure websites—those with “https” in their names and the closed padlock icon in the URL bar—is one approach to prevent falling victim to scams like these.
Overhyping a coin that, in all honesty, has no opportunity to become a frequently used cash source is another typical scam. Scam artists will hype and market a currency by using phrases like “the next xyz,” “the Bitcoin killer,” and other lofty claims. Like pump-and-dump tactics, these coins are only there to make fraudsters rich.
Once enough investors have joined in, the hypesters will liquidate their holdings and take their winnings, leaving investors holding worthless cryptocurrency.
Fraudulent Initial Coin Offerings
Some frauds are so daring that it’s almost impossible to trust them. Fraudulent initial coin offers (ICOs) enhance the concepts of pump-and-dump schemes and overvalued coins by directly selling non-registered cryptocurrencies to the broader populace. In the best-case scenario, these false coins merely have little worth or use. However, there are instances where ordinary investors are sold fake coins. In these fake “IPOs,” the investors’ money is simply collected by scammers, who then vanish.
These unregistered, fraudulent currency offerings are still around even though the SEC has begun taking action against them. Before you part with your hard-earned cash, make sure the cryptocurrency you’re investing in has trustworthy backing and is offered by respectable companies.