The 5 most common crypto scams to watch out for

Crypto is revolutionizing finance, but as a relatively new space it also has its share of bad actors. Even seasoned investors can slip up if they're not on guard against current scam trends, so being aware of today's most common cons is the best way you can protect your hard-earned money. Invity shares some of the crypto fraud techniques to watch out for below.

Key takeaways

• Brand-new coins that gain huge publicity almost overnight are always suspect—do your research and wait for a project to prove itself and its use cases.
• If a promoter or authority tries to pressure you into taking immediate action, there's probably something fishy going on.
• As always, if something seems too good to be true, it probably is.

1. Pump and dump schemes

In a pump and dump scheme, bad actors spread hype and even false information to drive up demand for a certain cryptocurrency, inflating its price to eye-popping values. Once the price spikes, however, these same scam artists sell off their holdings before anyone else. This crashes the price and leaves remaining investors with nearly worthless tokens.

These types of coins often gain their rapid popularity through celebrity promotions. Recent examples include the TRUMP coin shilled by the current US president and Ethereum Max promoted by Kim Kardashian among others.

Be wary of seemingly organic social media conversations that promise “the next big thing” in crypto or if one person holds the large majority of tokens in circulation: these often turn out to be pump and dump scams.

2. Rug pulls

A rug pull happens when developers launch a new cryptocurrency project, attract investors, and then suddenly abandon it—taking all the invested funds with them.

Similar to pump and dumps, rug pulls often use celebs or pop culture tie-ins to popularize their tokens. A memorable example is SQUID, which would allegedly allow users to play online games related to the hit Netflix show Squid Game. Squid Coin's anonymous creators soon disappeared with millions of investor funds.

Rug pulls are common with decentralized finance (DeFi) projects and memecoins that lack transparency about ownership or clear use cases. Always thoroughly research the team and their proposed project before investing.

3. Phishing

Phishing scams involve fraudulent emails, messages, websites or phone calls that seem perfectly genuine. These communications are designed to play on your emotions, tricking you into revealing sensitive information like your private keys or login credentials; bolder fraudsters may even try to scare or bully you into sending immediate payments.

The best guard against phishing is to adamantly refuse to share your wallet keys, seed phrase, or login credentials anywhere except an official wallet application like Invity's. For a closer look at the many types of phishing in the world—and extra safety tips—check out Invity's full article on phishing.

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4. Airdrops and giveaways

Scammers often pose as celebrities or reputable crypto influencers claiming to offer Bitcoin or altcoins, often for free but sometimes in exchange for small payments. These “giveaways” may be a method of simulating trading activity (the first step in a larger pump and dump or rug pull scheme), or they may be attempts at direct fraud by asking users to send funds in exchange for larger returns that never arrive.

Your line of defense here is simple: nothing in life is free.

5. Ponzi and pyramid schemes

Some crypto projects guarantee high returns with little to no risk, in reality using funds from new investors to pay earlier participants. These unsustainable models eventually collapse, leaving the majority of investors with nothing. This is a classic Ponzi scheme, a fraud technique that long predates crypto.

When a project promises fixed returns that sound unrealistic, the old wisdom holds true: if it sounds too good to be true, it probably is.

The safe path: Bitcoin and dollar-cost averaging

With scams popping up on the daily (and even traditional finance isn't immune to bad actors, for that matter), what's an investor to do? Without providing investment advice, we here at Invity encourage investors to forget about chasing quick profits through risky projects. The safer approach is to rely on the proven investment vehicle that is Bitcoin and take the long view by dollar-cost averaging (DCA).

Investing a fixed amount into the worldwide and hacker-resistant Bitcoin network at regular intervals helps smooth out price volatility, reducing the risks that come with market manipulations, ephemeral niche tokens, or timing the markets. This approach also allows investors to accumulate Bitcoin over time, preparing you for whatever life throws your way.

The best way to safely participate in the future of digital money and keep stacking sats is with the Invity app—get started or check in on your investment today!