Bitcoin, perhaps the most well-known and most enticing cryptocurrency in the world, has nearly doubled in price since the start of the new year.
Prices for Bitcoin hit $58,332 two weeks ago, marking an all-time high for the coin. The previous high before the recent surge was just under $20,000 in late 2017. Following the highs seen in 2017, Bitcoin plummeted nearly 80% to the $3,500 level in the next year. Bitcoin has recovered well since then, giving rise to newfound optimism for the coin.
This article serves as a reminder that Bitcoin scams continue to take victims on a daily basis. We are not recommending whether or not to invest in Bitcoin, but rather to be aware of the risks that you may face in everyday life when dealing with individuals and companies claiming to be involved with Bitcoin and other cryptocurrencies.
Our previous article on gold, silver, and other metals detailed some of the most common scams that occur in this area. Scams have appeared more recently due to the rampant uncertainty right now in global markets. In times of uncertainty, precious metals have thrived as a hedge against the potential for financial crises.
For instance, we saw gold, silver, and other precious metals continuously set all-time highs amidst the financial crisis of 2008. Gold prices rose from less than $300 per ounce before the crisis to nearly $1,800 per ounce in 2011. Silver prices multiplied tenfold, from around $4 per ounce in 2000 to more than $42 per ounce in 2011.
Scam artists caught on that crises create demand for precious metals. The same reality seems to be prevalent for Bitcoin: people advocate that Bitcoin is similar to gold and silver as a hedge against fiat currency, which has no backing to tangible commodities.
Three Common Scams
Whether or not you agree that Bitcoin is valuable or not, we want to warn you about the potential scams that we see in the marketplace regarding Bitcoin and other cryptocurrencies. Here are three common Bitcoin scams to be aware of:
- Fraudulent ICOs (initial coin offerings): Many scam artists like to pitch the idea to new investors that they could invest in “the next Bitcoin” and make millions. However, this is highly unlikely, and it should serve as a major red flag. A study by ICO advisory firm Satis Group found that as much as 80% of ICOs in 2017 were scams. Proceed with extreme caution before investing in ICOs and understand the risks involved in such offerings.
- Pyramid Schemes: New investors may be especially prone to multilevel marketing, known simply as pyramid schemes or Ponzi schemes. Scam artists may promise high returns to naïve investors who are unaware of the risks involved in cryptocurrencies. These scammers also portray their companies as risk-free or low risk opportunities for which investors need to take advantage and act quickly. This is also a major red flag, and investors should run away from anyone who purports cryptocurrencies to be low-risk, high reward.
- Fraudulent Exchanges: Since cryptocurrencies are largely unregulated, investors are more prone to encountering a fraudulent exchange that claims to facilitate sales of coins between buyers and sellers. However, there are many fake exchanges where investors sign up only to have their money stolen. Exchanges that offer Bitcoin or other coins below market value would be a warning to investors. Scam artists create exchanges that seem to offer Bitcoin at a much lower market price to direct new investors away from legitimate exchanges.
As always, be sure to complete due diligence on your investments. Contact us at 239-319-4434 if you have any questions or suspicions that you are involved in a scam involving Bitcoin or other cryptocurrencies.
Remember, whatever it is, let’s make sure our money is working for us and not for somebody else.