CRYPTO scams are shifting to social networks such as Instagram and TikTok where influencers may be unaware that they are pushing fake cryptocurrencies.
Millions of Brits have invested in cryptocurrencies but this has given rise to scams.
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Interest in cryptocurrencies has increased this year after virtual currencies such as Bitcoin and Ethereum hit record highs and smaller coins such as Dogecoin have tried to emulate their rise.
Investing in cryptocurrencies is highly risky as values can be volatile and City watchdog the Financial Conduct Authority (FCA) has warned that investors could lose all their money.
Bitcoin and Ethereum have also suffered record declines in recent weeks, underlining how risky they are.
One of the main ways investors have been buying cryptocurrencies is through social media, according to the FCA.
5 risks of crypto investments
THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
Its research found that 40% of crypto users have got involved with cryptocurrency after seeing a social media advert.
Experts have warned that many of these adverts could be scams as cryptocurrencies are unregulated and anyone can setup their own coin or website to try to attract money.
Facebook tried to clampdown on this in 2018 by banning crypto ads.
It has since softened its policy by only allowing pre-approved advertisers to post about cryptos once it has assessed their eligibility.
The social media website said advertisers wanting to run ads for cryptocurrency products and services must show any licenses they have obtained, whether they are traded on a public stock exchange, and other relevant public background on their business.
Erica Stanford, founder of the Crypto Curry Club and author of Crypto Wars: Faked Deaths, Missing Billions and Industry Disruption, said these curbs have meant scammers have shifted to other less strict social networks.
She told The Sun: "One trend has been- as Facebook is slowly making more efforts to try and curb down on the more obvious scams- is influencers moving more towards TikTok, as they can get away with posting almost anything.”
She warned that many influencers on Instagram and Facebook may be unwittingly promoting cryptocurrencies that are in fact scams.
For example, crypto influencer Matt Lorion apologised to his millions of TikTok followers in April after promoting a cryptocurrency called Mando that turned out to be a scam.
The coin launched in March using images from the hit DisneyPlus show “The Mandalorian.”
But it had no links to the show and its website and Twitter page disappeared weeks later.
Lorion had invested $10,000 himself and said he and his team would do background checks on any other coins he promotes in the future.
He has been asked for comment.
Ms Stanford said this is an example of how scammers are using influencers to “pump and dump” coins.
What are crypto pump and dumpschemes?
This is a method where a coin is created and supporters and influencers are encouraged and sometimes paid to use social media posts on TikTok and Instagram to increase interest and investment in the cryptocoin to push the value up.
The actual owners will often then sell out and take all the profit, which reduces its value and leaves others with nothing.
Alternatively, as in the case of the Mando coin, some scammers may just steal people’s money.
Ms Stanford warned that there are now so many cryptocurrencies that it can be unclear if someone promoting one on social media is just optimistic about it going up in value or unwittingly promoting a scam.
How to spot crypto scams
CRYPTO scams are popping up all over the internet. We explain how to spot them.
- Promises of a high or guaranteed return – Does the offer look realistic? Scammers often attract money by making fake promises.
- Heavy marketing and promotional offers – If they are using marketing tricks to con customers you should beware.
- Unamed or non-existent team members – Just like any business you should be easily able to find out who is running it.
- Check the whitepaper – Every crypto firm should have a white paper. This should explain how it plans to grow and make money. If this doesn't make sense, then it could be because the founders are trying to confuse you.
- Do your research – Check reviews online and Reddit threads to see what other people think.
There are 11.5m hashtags on Instagram about cryptocurrency and 1.5billion views on posts with the same phrase on TikTok.
Unlike regulated investments that have risk warnings, Ms Stanford warns that posts and promotions may come across as once in a lifetime opportunities and investors can be lured by images of flash cars or luxurious properties.
She said: “The problem with many crypto scams is that they are propagated so widely by influencers and people who others trust. Crypto scams use expert marketing, which makes so many people fall for them.
"They often use multi-level marketing strategies- whereby those who invest often make far more money by bringing all their friends and family- and then followers in, which is how so many scams get so big so quick.
“Their promoters earn good money by referring new people to the scams or through affiliate links. Influencers are often motivated by immediate money and don’t do thorough checks on what they’re promoting.”
Pump and dump is an illegal strategy in regulated investing as it is a form of insider trading but Ms Stanford said it is a grey area with cryptos that regulators have not been able to keep up with.
The Sun has seen several groups on the Telegram social messaging network that encourage users to push up the value of a certain coin using social media posts so everyone can try to make a profit.
Groups such as Crypto Coin Pump Signals regularly post messages and run polls about which cryptocoins to pump.
There are also groups using the Wall Street Bets name, after the group of amateur investors that have helped stocks such as GameStop surge in value.
Crypto pumps aren't technically illegal or against any rules as cryptos aren’t regulated.
There is also no suggestion that the coins being promoted are scams but experts have warned that it can be hard to tell.
Ms Stanford said it is important to do your research on cryptos and check who the developers are as well as the actual use of the coin to assess if it has any value.
Tyler Moffitt, senior security analyst at cybersecurity firm Webroot, said: "The easiest way to spot and avoid cryptocurrency scams, is to look out for the stories that are too good to be true."
Both groups and Telegram have been asked for comment.
A spokesperson for TikTok, said: "We do not permit content that brings about financial or personal harm.
"We recently launched a public service announcement that appears on the most commonly searched hashtags relating to financial advice, reminding users that all investments involve risks and that they should consider conducting their own research."
"We enforce these guidelines using a combination of technology and more than 10,000 moderators around the world, and we make it easy for our community to report content that may violate these rules – and we encourage them to do so."
TikTok has also been working with Citizens Advice to create posts that highlight how to spot a scam and promote financial literacy.
Crypto payment scams
Another method used by scammers is to take crypto payments for goods and services.
The Sun revealed earlier this month how retiree Teresa Jackson, 63, lost her £120,000 life savings after signing up to a Bitcoin investment scheme after spotting an advert for it on Instagram.
These scams often promise high returns and ask for money to be sent in the form of cryptocurrencies that then can’t be traced or refunded.
Debbie Barton, financial crime prevention expert at wealth managers Quilter, said there should be more laws to protect people from online scams.
She told The Sun: "The world of investing through social media has a dark side. Scams are rife and it is incredibly hard to tell whether an advert for an investment product is the real deal or not.
“There are few checks and balances preventing a scammer from posting a fraudulent online advert, and promoting it through search engines and social media.
“Technology companies aren’t legally required to conduct due diligence on the adverts to make sure they are real.”
She said the government should expand the scope of the Online Safety Bill to include scams so that technology companies have a duty of care to protect users.
A spokesperson for Instagram owner Facebook said: "We don’t want fraudulent activity on our platform and have built technology to find and reject scam ads and block scam advertisers so that people don’t come across them.
"This is an industry-wide issue and while no enforcement is perfect, we will continue to invest in new ways to protect people from this activity on our platforms.
"We have also donated £3 million to Citizens Advice to raise awareness of online scams and help victims."
The FCA has been asked for comment.
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