Why is Crypto Such a Magnet for Scammers?

Scams are as old as money itself. From ancient traders swapping out inferior metals for silver to today’s phishing texts promising undelivered parcels, fraud has always found new ways to exploit human weakness.

The rise of cryptocurrencies adds a fresh twist: a borderless, lightly regulated market where greed and fear of missing out collide with cutting-edge technology. Blockchain data platform Chainalysis reported in January 2025 that in 2024 alone, $40.9 billion was funnelled to illicit cryptocurrency addresses.

Whether it’s a rug pull that vanishes overnight, a pump-and-dump scheme built on social media hype, or fake exchanges set up to appear legitimate, the playbook is depressingly familiar, but the scale is amplified.

The question isn’t whether crypto is uniquely vulnerable. It’s why, despite all the warnings, investors keep falling for the same tricks.

Even seasoned voices have framed crypto as little more than a scam factory. In September 2022, JP Morgan boss Jamie Dimon famously called crypto a ‘decentralised Ponzi scheme’, a soundbite that continues to frame sceptics’ view of the sector.

At the same time, crypto’s defenders argue that the industry is populated by technologists too savvy to be fooled. Both views miss the point: scams thrive not because people are ignorant, but because greed and urgency cloud judgment.

What does a crypto scam look like?

The US Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) both stress that scams tend to follow the same familiar patterns. Their checklist includes ‘guaranteed’ returns, pressure to invest quickly, and sellers who are unlicensed or difficult to trace. The FTC reported in March 2025 that US consumers lost around $5.7 billion to investment scams in 2024 - more than any other type of scam.

Regulators in Europe echo the same concerns. The European Securities and Markets Authority (ESMA) has warned that retail investors remain especially vulnerable to hype-driven products in crypto markets, noting that marketing often overshadows risk disclosure. The UK’s Financial Conduct Authority (FCA) adds that many scams exploit social media channels, making them harder to spot until losses mount.

How to Spot a Scam: Regulator’s Six Red Flags

• ‘Guaranteed’ high investment returns
• Complicated jargon and language, sometimes with spelling, grammar and typographical errors
• Unlicensed sellers
• Sounds too good to be true
• Unsolicited offers
• Pressure to buy RIGHT NOW

Common Crypto Scams

Crypto scams are not a niche problem. Chainalysis reported in February 2025 that at least $9.9 billion was generated by crypto scammers in 2024, and that since 2020, it has been seeing the volume of these scams grow by around 24 per cent each year. 

What is a rug pull in crypto?

Rug pulls are exit scams where developers disappear with investors’ money after building hype. The Frosties NFT project illustrates the playbook: 8,888 tokens were promoted heavily on social platforms, drawing in over $1 million from buyers. Instead of a thriving community, investors were left with nothing as the team shut down the project and vanished. 

What is pig butchering, and why does it work?

Pig butchering scams take longer to play out but can be just as devastating. Scammers build trust over weeks or months, often posing as friends or romantic partners online. They persuade victims to invest small amounts, which appear to grow through fake platforms or falsified statements. 

Encouraged by these apparent gains, victims commit larger sums, sometimes their savings. Only when the scammer cuts off all contact do they realise the money never existed, and that they’ve been ‘fattened up’ for the slaughter. 

What is a pump-and-dump?

Pump-and-dump schemes involve promoters inflating the price of a token through hype, then cashing out at the top while latecomers are left holding worthless assets. 

The Squid Game Token, launched on the back of the hit Netflix show, rose thousands of per cent in days before its website disappeared along with investors’ money. 

This collapse was no anomaly. As Cornell University economist Eswar Prasad observed, such schemes are designed to draw in naïve retail investors and exploit them through hype and misinformation.

What are fake exchanges and wallets?

Fraudsters also set up exchanges and wallets designed to look like legitimate services, often complete with convincing branding and slick interfaces. Increasingly, scammers impersonate well-known firms, even posing as employees of major exchanges, to extract listing fees or deposits. Advances in generative AI make these impersonations more convincing and harder to detect.

FTX: The Biggest Yet

The collapse of FTX in 2022 remains the largest fraud in crypto to date. More than $11 billion of customer deposits were secretly funnelled to the firm’s sister trading firm, Alameda Research, to cover losses and fund risky bets. Executives misled users and regulators about the exchange’s financial health, while pretending to run prudent risk controls. 

John Ray III, the veteran restructuring specialist appointed to oversee the bankruptcy, described it bluntly: “This is really old-fashioned embezzlement … just taking money from customers and using it for your own purpose.”

FTX’s implosion triggered one of the largest fraud cases in financial history. Its founder, Sam Bankman-Fried, is serving a 25-year sentence, while other executives also face jail. The scandal intensified global scrutiny of crypto markets and remains a cautionary tale.

Are crypto scams different?

It’s tempting to think scams are a crypto problem. In reality, they are a human problem. Psychology explains a lot more than technology: people fall for schemes because they trust authority figures, chase quick profits, or simply stop paying attention.

Crypto investors may pride themselves on being sceptical of banks and governments, but that scepticism doesn’t make them immune. The same instincts that drive traditional fraud, such as urgency, greed and fear of missing out, are just as powerful in digital markets.

What makes crypto different is not the scams themselves, but the setting. The market remains lightly regulated, transactions are irreversible, and assets can move across borders in seconds. Those features make recovery difficult and uniquely hard to stop.

The best defence

Every regulator agrees on one point: the weakest link is not the technology but the individual. Crypto doesn’t make you immune to human error; if anything, it amplifies it.

The defences are simple but not easy:

• Slow down before acting on an offer
• Treat unsolicited pitches with suspicion
• Verify platforms and people before moving money

The hardest step is resisting panic and urgency. Scammers win when victims rush, whether through greed or fear of missing out. Take a pause, and most traps reveal themselves.

Because in crypto, as in every market, being savvy isn’t the same as being scam-proof. As regulators often caution, when an offer seems too good to be true, it usually is.