When investing in crypto, avoid these scams to protect your portfolio

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When investing in crypto, avoid these scams to protect your portfolio

Cryptocurrency is one of the most popular investments in recent years. The crypto market is booming, with billions of dollars being traded and purchased every quarter. However, despite this growing popularity, the crypto industry is not without its fair share of scams. Coinbase, one of the largest and oldest in the world cryptocurrency exchanges, has recently come under fire for several of its users being scammed on its platform.

Due to its relative newness, many are still skeptical about investing in cryptocurrencies, and any scam is sure to heighten that suspicion further. Hundreds of millions of dollars in cryptocurrencies are traded daily without issue, although like any other investment there are always scams to be wary of.

Identify a potential scam

Here are some warning signs to keep in mind if you think you might be a potential victim of a crypto scam:

  • Promises of guaranteed returns: While certainly not unique to crypto, any financial investment, crypto or otherwise, cannot guarantee a certain outcome in the future. Any investment promising certain returns is a major red flag.
  • Dubious or non-existent white papers: All cryptocurrencies must have a white paper that explains the design and function of the coin. This is a critical facet of a cryptocurrency, and if it doesn’t make sense or doesn’t exist, be very careful.
  • Suspicious marketing: There are almost 20,000 different cryptocurrencies, and most of them have been created in the last few years. Many cryptocurrencies engage in aggressive marketing campaigns to stand out in such a crowded market. While this is an understandable tactic, beware of marketing claims that make superfluous claims.
  • Unknown team: Understanding and knowing the creators of the coin and who runs it is essential for good cryptocurrency. Beware of hard-to-find biographies and an inactive social media or web presence.

Types of scams

There are many types of scams to watch out for:

  • Phishing scams: Often targeting information relating to crypto wallets, Phishing scams target a wallet’s private keys to access wallet funds. These scammers often send an email to lure owners to a specific website that tricks them into entering their private information. Once they have acquired the private key information, they empty the wallet.
  • Fake websites and apps: Scammers often create fake trading sites or platforms that mimic real websites and wallets to trick unsuspecting investors. Although they usually have similar domain names to the sites they imitate, there are always subtle disparities that you should look for as these are telltale signs. Crooks also create fake apps for this purpose, although they are often quickly deleted. To be prepared, always look at reviews and download counts on any trading app, and do your research beforehand.
  • Pump and dump: Scammers and hackers will mass-market a particular coin or token via email blasts or social media, tricking investors into buying the coins and subsequently driving up the price. Once the price is inflated, scammers then sell off their holdings en masse, causing the value of the coin to plummet. This type of scam can happen in minutes.
  • Fraudulent initial coin offerings (ICO): An ICO is something that startup crypto businesses often use to raise funds and generate interest. Potential investors are often offered a discounted price on new coins in exchange for sending in more established coins such as bitcoin. Many ICOs have ended be fraudulent and went to great lengths to mislead potential investors.

Protect yourself from scams

There are currently nearly 20,000 cryptocurrencies on the market, with more being added daily. Although there are many legit coins and investors that have made lucrative returns, the industry is still relatively new and attracts all types of people, some of whom have nefarious intentions.

Investors should take certain precautions when investing in crypto, especially if you are new to the industry. So many scams target newer, lesser-known coins that are often over-promising and under-delivered. A good rule of thumb, especially if you’re just starting out, is to stick with popular coins, such as Bitcoin, which is much more established and well-known. Although the purchase is older and more established exchanges are not a surefire way to avoid scamssticking to reputable exchanges is a to have to when buying cryptocurrency. Reputable exchanges include Gemini, Coinbase, and Binance.

Although investing in well-known coins on established exchanges will likely protect you from more scams, it is not the panacea for all scam problems in the field of crypto. Common sense is essential. If something seems too good to be true, it probably is. Anything that offers astronomical returns or guaranteed profits will almost certainly be a scam.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are intended for general informational purposes only and should not be construed or construed as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. Epoch Times assumes no responsibility for the accuracy or timeliness of the information provided.

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