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Know Your Scam: Fake Crypto Investments to Watch Out For

2023-03-06
Know Your Scam

Main Takeaways

  • Fake investment scams use the allure of high returns to bait victims into parting with their money.

  • Scammers typically use a four-step process: find, gain trust, induce, and close.

  • Report any scam targeting you to relevant authorities, change compromised passwords, and freeze any accounts if you’ve already transferred money. 

Protect yourself from crypto scams by learning how to identify and avoid fake investment schemes. Discover how in this week's edition of Know Your Scam!

They may seem legitimate on the surface, posing as crypto financial advisers, employees of leading financial firms, or even celebrities. The returns they promise are high, with little to no risk or effort required from your side. They are investment scammers.

While they come in various forms, investment scams share a common mechanism: promising victims exorbitantly high returns, then running off with their money. If you only remember one thing, remember this: if it sounds too good to be true — it probably is. Steer clear. 

To begin, let’s examine how a fake investment scam typically unfolds.

A Four-Step Process

1. Find 

Scammers usually find potential targets on popular social media platforms like Facebook, Instagram, or Twitter. They might reach out to the victim under the false pretense of an investment manager offering advice or a wealthy individual who “accidentally” messaged the wrong person. 

Fake investment scams aren’t always so direct, however. One might stumble upon advertisements on social media using a known brand or persona, such as Elon Musk, to promote their services. These ads will then link to a professional-looking website designed to gain people’s trust.

2. Gaining trust

The scammer begins to build trust with their newly-acquired target by sharing investment success stories, glowing user "testimonials,” and phony earnings reports. Some scammers will go as far as to bring up topics like health, emotional well-being, and even the victim’s family members. 

3. Induce 

After a period of “friendship” — and brainwashing — the scammer has established a basic sense of trust with the target and will veer the conversation toward investing and earning large amounts of money. 

Our team has also seen instances of scammers promoting fake investment software that is riddled with bogus prices, investment returns, and coin listings. Going a step further, the scammer can even fabricate a bullish movement with made-up charts to lure investors into depositing money. 

4. Close

The final step is “closing the deal.” Oftentimes, just as the victim celebrates their newly-earned gains, it’s suddenly impossible to withdraw their money or the account has been “shut down.” The "investment manager" becomes distant and eventually stops responding to messages. 

At this stage, the target is now a victim of a scam. The scammer may even ask the victim for more funds to facilitate a withdrawal. 

See Two Examples in Action

Here are two examples of fake investment scams that took place in real life. We’ve recounted them below in the hopes that users can better identify the common methods, patterns, and conversation starters behind crypto investment scams. 

Example 1: Crypto Financial Adviser

The user, who we’ll call Mark, fills out an online form about his crypto-related habits and attitudes that he’d found online. He then receives a cold call from a scammer who claims to be a financial adviser. 

The two develop a working relationship over the course of a few months, talking and exchanging information every day. Eventually, the scammer gains Mark's trust.

One day, the scammer encourages Mark to make an investment via a platform that generates 2% returns every day. Mark, out of his blind trust, deposits 5,000 USDT. 

Mark’s money grows as advertised over the next few days. The scammer encourages Mark to invest more; Mark goes along and deposits 30,000 USDT. One week later, Mark realizes he’s been duped by a scammer.

Example 2: Celebrity 

The user, who we’ll call Lucy, discovers a link on Facebook to “Elon Musk's Quantum AI Trading Platform.” Apparently, all she needs to do is deposit her crypto, and an AI will trade for her.

After contacting the “Quantum AI Trading Platform,” Lucy makes an initial deposit of $250. Trading begins and her profits quickly accumulate. Lucy is convinced that "investing" $5,000 in the platform will pay off in a big way and deposits the money. Lucy realizes she’s been scammed after her attempted withdrawal is blocked for “anti-money laundering (AML),” requiring a 30% deposit fee to be released. 

How to Protect Yourself From Fake Investment Scams

Do your research (DYOR)

Every cryptocurrency project should have a whitepaper. The whitepaper should explain the project’s mechanics and tokenomics. If someone is inducing you to invest in a project with a whitepaper that doesn’t make sense – or worse, doesn’t exist – then tread carefully. 

Perform a background check on the company, its owners, directors, and team members. At the very least, do a quick Google search and apply common sense. 

Ask yourself: Does the project have a real team? What problem is the project trying to solve? Is there a legitimate community of users behind the project or its product? 

Don’t assume authenticity

Professional-looking websites, advertisements, or social media posts don’t indicate a genuine investment opportunity. Criminals can and often do exploit the names of trusted brands, such as Binance, or famous individuals to make their scams appear legitimate.

Beware of high returns

No financial investment can guarantee future returns. No one person, algorithm, or project can accurately predict the market systematically. Anything that promises you guaranteed returns is a red flag. Particularly, pay close attention to statements like “earn 3% per day.” Don’t be tricked by a low number that could sound legitimate: 3% per day is the same as 1095% per year – a clearly implausible return on investment. 

Avoid unsolicited investment offers

The so-called investing expert or hot single who reaches out to you is likely a scammer. You’re not special — professional scammers chat and flirt with hundreds or even thousands of targets daily. 

As long as at least one person invests, the scammer is not wasting their time. Don’t let someone rush or pressure you into making an investment decision.

Protect your personal information

Always verify the identity of anyone talking investment to you against official websites or social media and never disclose your personal or account details to anyone. 

If you receive a message from someone asking for sensitive information, such as 2FA codes or passwords, block the contact and file a report to the relevant authorities.

If You’ve Been Scammed

It happens. Don’t feel ashamed. Falling victim to a cryptocurrency scam can be devastating, but it's essential that you act quickly. 

If you’ve fallen for a social media scam, file a report to the relevant social media platform and report the case to your local authorities. 

Change your passwords and freeze financial accounts if you’ve already made a payment or transfer using a debit/credit card. Additionally, crypto scammers often sell stolen credentials to other criminals. Ensure you change all usernames and passwords to prevent further damage.

Don't trust strangers who come immediately after the scam, especially if they offer to recover your money. The follow-up scam might be independent from or related to the previous one, such as an offer to return your money after you pay an upfront fee.

If your Binance account is compromised, contact us immediately: How to Report Scams on Binance Support. 

Further Reading

Disclaimer and Risk Warning: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial advice, nor is it intended to recommend the purchase of any specific product or service. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance is not liable for any losses you may incur. Not financial advice. For more information, see our Terms of Use and Risk Warning.