Investors should be on the lookout for cryptocurrency scams this year, as a new report suggests they pose a significant financial threat.
According to a new report from the North American Securities Administrators Association (NASAA), cryptocurrency scams are the number one top investor threat "by far." NASAA said it is of the utmost importance that in 2022, investors understand what they are investing in and with whom they are investing when it comes to cryptocurrency.
"Stories of 'crypto millionaires' attracted some investors to try their hand at investing in cryptocurrencies or crypto-related investments this year, and with them, many stories of those who bet big and lost big began appearing, and they will continue to appear in 2022," said Enforcement Section Committee Co-Chair Joseph P. Borg, Alabama Securities Commission Director, in a statement.
Borg added that "unregistered private offerings generally are high-risk investments and don't have the same investor protection requirements as those sold through public markets."
NASAA identified the most common cryptocurrency schemes as fake digital wallets and multi-level marketing platforms. Another standard scheme is a "pump-and-dump," or when groups coordinate an effort to promote a cryptocurrency to drive up the price then coordinate a sale to devalue the crypto for everyone else.
The rise in crypto scams goes hand in hand with the increase in crypto use and its value in the market. According to CoinMarketCap, the global market value of cryptocurrency is currently at $2 trillion, with Bitcoin leading the industry, followed by Ethereum, and Tether. However, there are currently more than 8,000 cryptocurrencies, which opens the door to lots of scams.
The global cryptocurrency market is expected to grow exponentially over the coming years, and experts predict that 90% of the global population will adopt cryptocurrencies in the next decade. In just the past few years alone, the cryptocurrency market has grown from $1.44 billion in 2020 to $1.63 billion in 2021.
NASAA's Enforcement Section Committee Vice-Chair Joseph Rotunda added that investors must be mindful when navigating the "crypto craze."
"Investments in cryptocurrency trading programs, interests in crypto mining pools, crypto depository accounts, and securitized tokens should be seen for what they are: extremely risky speculation with a high risk of loss," he said in a statement.
Aside from investments tied to cryptocurrencies and digital assets, the other top threats NASAA pointed to include fraud offerings related to promissory notes, money scams found on social media, and financial schemes related to Self-Directed Individual Retirement Accounts.
NASAA provided some expert advice in navigating these threats, including paying close attention to domain names, being aware of fake client reviews, and that if something sounds too good to be true, it most likely is.