How to avoid Bitcoin investment scams (and other cryptocurrency fraud)

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by Aidan Kang, CFA

Senior Writer

Identity Theft

UPDATED: August 14, 2022

Millions of crypto users worldwide trust Bitcoin. You might have already even encountered brokers endorsing it as an investment opportunity.

Bitcoin’s value swelled by more than 93.7 million percent in the past decade, so investing in it is at least worth considering. Think about it—you’d have about $2.8 million today if you invested $1,000 about 10 years ago.

Still, we can’t wholly endorse most Bitcoin investment schemes.

Bitcoin scams are becoming increasingly prevalent. The Federal Trade Commission (FTC) reports that Americans have already lost over $1 billion to Bitcoin investment scams since 2021.

Nonetheless, we think Bitcoin is an excellent cryptocurrency. And to help protect first-time investors, we gathered the most crucial insights from news reports and case studies discussing Bitcoin investment scams.

By the end of this guide, you’ll know how to spot scams a mile away.

Please read without skipping. We’ll share a common misconception that stops victims from tracking and reporting scammers. Facing scams alone will only put you at further risk.

Let’s dive into the most common Bitcoin scams online!

How fake Bitcoin investment schemes usually go

Before moving on to Bitcoin scams, let’s look at its technology. Bitcoin runs a decentralized platform, so no single authority or entity regulates Bitcoin transactions—or any cryptocurrency for that matter.

Decentralization has several pros and cons. Although various factors come into play, one prominent advantage is that users rule the platform.

Take the Bitcoin supply as an example. Unlike fiat money, government agencies and financial institutions can’t control the number of Bitcoins circulating on the market. Only miners—fellow Bitcoin users—can create new tokens.

Similarly, the price of Bitcoin depends on its users. The market fluctuates depending on the tokens users trade, buy, mine, or sell.

Essentially, decentralization equates to freedom. 

However, freedom comes with a heavy price: insufficient protection. Since government agencies and financial institutions don’t regulate transactions, you have no choice but to protect yourself against criminals.

In fact, crypto transactions are generally irreversible. Even if the Federal Trade Commission (FTC) and Federal Bureau of Investigation (FBI) assist you, only the receiver can return your money.

Unfortunately, scammers take advantage of Bitcoin’s anonymous, decentralized platform. They steal money:

Overall, they’ll persuade you to transact via Bitcoin. Again, you can’t freely reverse crypto payments, so it’s game over once you authorize these transactions.

Warning signs of Bitcoin investment scams

The general public doesn’t fall for the same schemes. Government agencies and financial institutions quickly release advisories once they catch wind of crypto investment scams.

However, crypto scammers are quite skilled. Although dishonest, they have the technical know-how and bandwidth to develop new ways to trick victims. 

Your best shot at avoiding these crooks is to improve your judgment. Be skeptical about every investment opportunity that comes your way and learn to spot tell-tale signs of scams, including:

1. Unexpected offers

As a general rule, stay wary of “investors” that call you first. Any firm or agency making millions on their crypto investment strategies won’t waste time cold-calling strangers.

Alspo, legit fund managers will rarely contact you for crypto investments. Yes, bank employees sell certain banking products, but they’ll offer in-person transactions.

2. Insufficient credibility

Any scammer can say they work for a widely known and trusted financial firm; don’t take claims at face value. Double-check if the person you’re talking to is who they claim.

For instance, if a so-called fund manager from a well-known bank contacts you, offer to call them through publicly listed hotlines. Legit employees won’t oppose it.

Also, monitor what the caller says. If they incessantly press you to divulge personal information, hang up and report the number for identity theft to the FTC.

3. Guaranteed returns

Never agree to offers that guarantee returns. Whether you’re investing in stocks, bonds, forex, startups, or cryptocurrencies, you can’t predict future market prices.

Instead of betting on signals or predictions, navigate the market. Look for proven, data-based investment strategies backed by impressive historical returns.

4. Inflexible payment options

Avoid any offer that demands crypto payments. Don’t get us wrong—there’s nothing wrong with crypto transactions, but shops, exchange platforms, and investment firms must offer alternative payment solutions.

Only pay in cryptocurrencies if you have experience with them. Otherwise, do your research first because these payments are irreversible; you’ll only get a refund if the receiver returns your money.

5. Unbelievable offers

Scammers entrap victims with profitable yet unjustified and ambiguous strategies. They’ll make you think you should trust them because you supposedly have nothing to lose despite the potentially high returns. 

If a deal sounds too good to be true, it probably is. Remember: the risk-reward concept dictates that lucrative opportunities will always come with an equivalent degree of risk.

Loss is always a possibility. Stay away from any investor, broker, or fund manager who tells you otherwise.

6. Poorly explained investment plans

Before investing in any crypto asset, ask your broker or advisor to explain the opportunity explicitly. You can even request historical returns.

Legitimate crypto brokers or fund managers will happily expound on their investment strategies in great detail. They won’t oppose scrutinization since they have nothing to hide.

On the contrary, crooks running fake investment schemes will flood you with vague strategies, ambiguous statistics, and generic responses. They won’t give you a legit breakdown because they don’t have one.

7. Time-sensitive offers

Unfortunately, most time-sensitive investment opportunities you’ll encounter are scams. 

Scammers use deadlines to confuse their victims. They usually set up large countdown timers on their landing pages, creating a false sense of urgency and instilling fear.

Never rush into any venture or investment. Remember: legitimate brokers, advisors, and exchange platforms will always give you ample time for research and due diligence.

Also, don’t chase Bitcoin prices. Cryptocurrency rates fluctuate consistently; even the most skilled investors can’t accurately predict the market’s movement.

Common Bitcoin investment scams

Knowing the warning signs of a Bitcoin investment scam is one thing, but understanding how scammers execute them in real life is another.

Remember that most scammers have years of experience under their belts. Unless you stay vigilant, you might not even realize you’re talking to a crook until it’s too late.

You’d do well to read up on these common Bitcoin scams and setups, or else you might get taken by surprise.

As we mentioned above, criminals keep coming up with new schemes. Although you can’t wholly predict their tactics, you won’t be easy to trick if you stay updated on the latest crypto news and trends.

Protecting yourself against cryptocurrency scams

You can reduce your susceptibility to crypto investment scams if you:

1. Avoid random investment advice

Please stay away from random investment opportunities on social media, website popups, or sponsored ads. They’re all likely scams. Only take advice from legit, certified fund managers working at widely trusted institutions.

2. Verify the other party’s identity

Never take your so-called broker’s identity at face value. Before you even listen to the other party’s offer, research them first and double-check where they really work.

3. Peruse investment opportunities carefully

Before agreeing to any crypto investment opportunity, carefully peruse the terms and conditions. Your contract should explicitly indicate all broker fees and liabilities. Avoid any agreement that bombards you with nothing but fixed, guaranteed returns because, again, no one can dictate market movement.

4. Research cryptocurrencies beforehand

Before investing in any blockchain, extensively research its features. Most tokens offer something unique. For instance, crypto investors primarily use Bitcoin for online payments because it has a relatively stable market value. Meanwhile, Ethereum can mint digital assets (i.e., games, songs, pictures).

Please don’t limit yourself to these tips. If you know nothing about the person who called you or their company, consider backing out of their crypto transaction or investment opportunity.

What to do if a scammer tricks you

Victims often hesitate to report Bitcoin scams thinking no one can help them; this is a misconception.

In fact, you can report Bitcoin scams to several agencies and institutions, namely:

1. Cryptocurrency Exchange Platforms

Immediately reach out to your crypto exchange platform. Crypto exchanges don’t regularly oversee transactions, but they’ll at least help you investigate the incident.

Also, they’ll lose clients if the word gets out that crooks use their platforms to scam innocent users. So don’t worry—they have no reason to ignore your request.

2. Federal Trade Commission (FTC)

The FTC generally enforces consumer protection laws. It helps the victims of identity theft, unfair business practices, and, of course, investment scams.

Visit its website to report any fraud incident. Also, send all pieces of evidence that might help FTC agents find the perpetrator faster.

3. Commodity Futures Trading Commission (CFTC)

Congress recently passed a bill that classifies cryptocurrencies as digital commodities. So although the CFTC still can’t regulate daily transactions, it now has enough authority and jurisdiction to penalize scam artists.

File your report online. The CFTC will even help you press charges against dishonest crypto fund managers and agencies.

4. Internet Crime Complaint Center (IC3)

The IC3 serves as the Federal Bureau of Investigation’s (FBI) public complaint center for internet-based criminal activities. Don’t hesitate to report anything involving online investment scams.

5. U.S. Securities and Exchange Commission (SEC)

The SEC classifies cryptocurrencies as commodities, not securities. It doesn’t view the crypto industry favorably, but it has an extensive reparation program specifically designed for crypto investment scams.

Keeping your cryptocurrency investments secure

Although Bitcoin scams are quite common, we don’t think you have to avoid investing in cryptocurrencies altogether. Legit crypto opportunities still outnumber scams.

You can definitely purchase digital assets like Bitcoin; just ensure you extensively research them before shelling out money. 

But remember that all investments carry some degree of risk. Scammers can abuse any asset, from cryptocurrencies to gold bullions, to trick innocent people looking to make extra cash.

Overall, make a habit of double-checking your investments. If you have doubts or uncertainties about the so-called broker on the other end of the line, don’t hesitate to back out of the deal.

Trust us—it’s easier to avoid getting scammed than to recover from one.

Aidan Kang, CFA

Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.