Why you should exercise caution when investing in crypto

Driven by an increased interest in cryptocurrency, little regulatory oversight and the constant introduction of new coins, cryptocurrency fraud could reach unprecedented levels in 2025. Fraud perpetrators no longer need to rely only on phishing attacks or counterfeit coins — they’re now using artificial intelligence to scam crypto investors. Unfortunately, many law enforcement agencies don’t have the resources to keep up with the latest fraud schemes. it’s up to crypto investors to be on the lookout for potential fraud.

AI enters the equation

The first crypto scams involved Ponzi schemes and rug pulls, where promoters abandoned coins they introduced and disappeared with investors’ funds. Now, AI-powered frauds involving deepfake influencers have become almost run-of-the-mill. For example, “pig butchering,” where criminals build long-term relationships with their victims to foster trust and entice them to invest in fictitious platforms, is a major risk. In 2024, the FBI notified 4,300 individuals — representing approximately $285 million in potential losses — that they were being scammed in pig butchering schemes.

Meme coins, a type of crypto inspired by internet memes, trends or pop culture, offer another opportunity for fraudsters. Although they may be entertaining, meme coins don’t have an intrinsic value and are, thus, easily manipulated by bad actors. Copycat tokens that mimic existing coins to take advantage of their popularity are also common.

Avoiding fraud

As crypto fraud becomes more sophisticated, investors must exercise caution. In particular, be wary of:

Exceptional returns. If a crypto promoter touts coins with exceptionally high, “risk-free” returns out of line with that of other, well-known currencies, there’s a good chance it’s a scam.

High-profile marketing. Fraudsters often market their coins across multiple social media platforms to attract more investors. If you see a crypto coin advertised aggressively on numerous sites, vet it carefully before investing.

Anonymous leaders. Suspicious cryptocurrencies generally don’t disclose the names of real people on their leadership teams. You should be able to view information about the executives of legitimate crypto companies on their websites.

Pressure to invest. Scammers often create a sense of urgency to trick investors into committing funds before they perform due diligence. Crooks may make “exclusive” offers or claim limited availability or excess demand.

Nonexistent or fake white papers. Most digital currencies outline their purpose, technology, and development roadmap in a white paper. If there’s no white paper or it’s not written well, consider passing on the investment.

Fake endorsements. If a promotional campaign involves one or more high-profile individuals and also makes unreasonable claims, it could be a deepfake scam.

Negative buzz online. Experienced crypto investors often try to warn novices about suspicious coins. If research uncovers negative sentiment about a coin offering, dig deeper.

Crypto fraud schemes should be reported to the FBI Internet Crime Complaint Center, the Securities and Exchange Commission or the Commodity Futures Trading Commission.

Use reputable exchanges

Crypto fraud continues to evolve, but that doesn’t mean all digital currencies are fraudulent. Using reputable exchanges and wallet providers can help mitigate risk. Also, stay informed about crypto developments and approach any new offering skeptically. Contact Arrow Exchange Tax Solutions with questions about fraud.   

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