Ambition and fear of missing out leaves investors vulnerable to scams, according to stockbroker Hargreaves Lansdown ahead of International Fraud Awareness on Sunday.
A report, cited by Hargreaves, revealed that there was already some 30% more crypto fraud (by the amount of value lost) by mid-October compared to 2020.
Moreover, the broker highlighted that watchdog Action Fraud received more than 7,100 reports of crypto fraud between January and mid-October, with the average reported loss at GBP20,500 and the total said to be GBP146mln.
“The fear of missing out on the huge gains means more people are dropping their guard and being seduced with claims the latest coin or tokens is the next big thing,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“14% of people who hold crypto assets have got into debt to do so, [so] It’s highly likely that some people who have been scammed, may have lost borrowed money, plunging them even deeper into debt,” commented Streeter.
Unsurprisingly perhaps, the broker added that an increasing number of younger people are being “lured in with promises of high returns,” and noted that 52% of the reported fraud victims were aged 18-45.
There are numerous signs to look out for that could indicate a red flag when investing in cryptos, Hargreaves said.
One red flag, the broker says, is heavy marketing and promotional offers, as well as crypto schemes that limit investors from selling in the future.
Other victims were caught out by groups with unnamed or non-existent team members, weekly investment schemes, and ads that have or, at least purport to have celebrity endorsement.
“So far this year 558 investment frauds reported related to bogus celebrity endorsement, and 79% of them were crypto scams,” said Streeter, so “it pays to do your research and check out the team behind the coin or token.”
A recent high profile and controversial asset was ‘SQUID’ crypto which has branding mimicking the popular Netflix show Squid Game.
The SQUID pitch was that buyers of the cryptocurrency would need the token to play a new online game, inspired by the ones played in the Netflix series.
There were some potential red flags “given that buyers couldn’t sell once they’d bought in,” explained Streeter.
“Having soared thousands of % in less than a week, the website closed, and it lost all value,” said Streeter, with the creators pocketing over US$3mln of investor’s money.
Many companies advertising and selling crypto investments are unregulated, and much of the financial activity associated with crypto is presently outside the remit of UK regulators and watchdogs, so the Financial Services Compensation Scheme (FSCS) would not cover the losses.
