The crypto crash isn’t the only way the decentralized currency can lose its holders a lot of real money. According to a new report from the Federal Trade Commission (FTC), cryptocurrency is increasingly used as part of scams, either as an integral part of the scam itself or just the way scammers want to be paid.
The FTC says 46,000 people reported losing more than $1 billion worth of crypto in scams between January 2021 and March 2022, noting that this number is only the people who reported their losses to the FTC. It’s likely that the actual number of people scammed and crypto lost is much higher, as most victims don’t report their losses to the FTC.
Even though that $1 billion figure might not be reflective of the true amount of money lost, it does indicate just how much crypto scams have increased: Reported losses were nearly 60 times higher in 2021 than they were in 2018. And in the first quarter of 2022 alone, losses were already about half of what they were in all of 2021. A quarter of the money lost in reported scams is now in crypto.
Crypto already has a not-great reputation as a playground for illegal purchases, hacker ransoms, and money laundering. Its increasing role in old-fashioned scams won’t help enthusiasts make the case that virtual currency should play a larger role in legitimate financial markets and banks. While President Biden signed an executive order last March to come up with cryptocurrency regulations, it’s not known what those regulations will be, when they’ll be put in place, or if they’ll do anything to prevent scams.
Fraud experts say the trajectory is alarming, and will likely only get worse.
“When criminals latch onto a new way of stealing people’s money, others follow,” Kathy Stokes, director of fraud prevention at AARP, which has its own crypto scam-related resources, told Recode. “Combine this with the ‘legitimizing’ forces of pro-crypto ads and the move of 401(k) plan service providers to add this unregulated, highly speculative investment as an option for their plan participants, there’s no telling how many people will lose a lot of money — which they won’t likely get back.”
More than half of that $1 billion came from investment-related scams: people promising they can invest victims’ money into crypto for big returns. That type of scam isn’t new even if the type of currency used in it is, but the once-booming crypto market likely made it an easier sell to victims. It certainly helped that, until recently, people regularly reported making huge amounts of money as crypto prices exploded. Combine that with the fact that most people don’t know much about crypto in the first place and you have the perfect recipe for scams.
The second-highest losses came from romance scams, which seem to be related to investment scams. Typically, someone gains the victim’s trust through a relationship, then gets them to give their money to an investment scam or to the “keyboard Casanova,” as the FTC colorfully refers to them. The scammer then promises to invest the funds — only for the scammer to disappear with the money.
Coming in third was business and government impersonation scams that demand payment in crypto. Typically, someone will get a text, email, or call about a purchase they made or money they owe to a government agency. While the victim never made that purchase and doesn’t owe that money, they’re told that they have to pay up in order to make the problem go away. Increasingly, they’re told to make those payments in crypto, thanks to the widespread availability of crypto ATMs that make it quick and easy for victims to make those payments and difficult for investigators to trace them.
Younger people (aged 20 to 49) were three times more likely to be scammed this way than other age groups, but the average amount of money lost to scams increased with age. This is generally true of non-crypto scams, too: While the stereotype is that only older people fall for online scams, young people are actually more likely to be victims. Their losses, however, aren’t as devastating, as it’s usually less money, and it might be easier for them to recover financially.
Another reflection of the times and the medium: Almost half of people who reported being scammed said it originated on social media — mostly Instagram and Facebook. It’s worth noting that the FTC is a US agency, and platforms like Telegram and WhatsApp (where crypto scams also proliferate) are much more popular in other countries. That’s more than four times higher than the number of crypto scams that began on social media in 2018. Overall, social media-based scams (as in, those including all forms of currency, not just crypto) have ballooned in recent years.
This report is far from the only one to highlight how scammers are taking advantage of a loosely regulated and difficult-to-trace decentralized virtual currency landscape. That might make it a harder sell to consumers and regulators that crypto can be a legitimate and useful finance tool. While many crypto enthusiasts point to the benefits of currency that isn’t controlled by banks and governments, that lack of control makes it easy for bad actors to take advantage. And it should make consumers more wary of putting money into crypto, especially when even legitimate investments are losing money.
The FTC recommends staying away from investments that promise big returns, anything that requires payment in crypto, and not to mix online dating with investment advice. It also has a dedicated site for crypto-related fraud.