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  • The cryptocurrency industry attracts a lot of unscrupulous players.
  • Investors and traders should pay attention to typical red flags to avoid scams.

Bitcoin’s strong recovery in 2020 brought the cryptocurrency into the mainstream. News about high-profile investors and large companies buying BTC added credibility to the new type of asset and increased its popularity among regular people seeking new investment opportunities. 

COVID-19 pandemic, social distancing and stay-at-home policies adopted in many countries played into the popularity of online trading and investment opportunities. Meanwhile, ultra-loose inflationary monetary policies and a zero interest rate environment emphasized Bitcoin’s advantages over traditional investment opportunities.

As FXStreet previously reported, over 15% of fund managers surveyed by Bank of America marked buying Bitcoin as a preferable strategy, making it the third-most overcrowded bet. 

However, the rise of public interest comes with consequences. One of them is the increase in the number of scams, frauds and devastating stories of going broke due to unscrupulous market players. 

Sometimes, investing in the cryptocurrency market feels like walking in the minefield, but it doesn’t have to be that way. By knowing the red flags and paying attention to clear signs of scams, investors can reduce the risk related to cryptocurrency investments by 90%. 

Below are five typical hallmarks of cryptocurrency scams. 

1. Money out of thin air

Remember that if the investment opportunity is too good to be true, it usually isn’t. If someone promotes some get-rich-quick scheme of offers investment returns significantly above the average on the market, chances are they are scammers. 

Fraudsters may sound very convincing, provide proofs and even feedback from happy investors. They will promise anything to lure you into the scheme. However, the hard truth remains: most of them will disappear into thin air once they get your money. 

By applying this simple rule, you’ll be able to avoid fake ICOs, fraudulent DeFi projects that plan to perform exit scam from the start, cryptocurrency Ponzi schemes and many more financial traps. 

2. You pay first

Sometimes scammers offer valuable gifts or access to secret trading strategies or instruments with 100% profitability. However, you have to pay some small entrance fee, cover the delivery costs, or confirm your cryptocurrency wallet address by transferring a small amount to another address. In most cases, you will never get what you have paid for.

Scammers usually ask for a small amount. In this case, people are willing to pay as risks seem to be insignificant. They typically approach their victims on social media or by sending spam emails or cold calls. 

This red flag will help to avoid scammy giveaways, fake lottery gifts and non-existent trading strategies.

Note that in some cases, you do have to pay upfront to get access to services or investment tools. However, legitimate companies will never approach you first or ask you to cover their expenses first. 

3. Once in a lifetime opportunity

Investments bear no haste. If someone says that you should decide right now, pass on this investment opportunity as they are trying to drag you into a shady business. In this case, scammers create a state of urgency and use moral pressure to confuse you and force you to make hasty decisions. 

This tactic is often combined with with “once in a lifetime” opportunity as fraudsters attempt to create a fear of missing out (FOMO). However, sometimes, they try to scare a victim. For example, they might say that you might lose all your money or be in trouble if you don’t act now.

By always taking timeout before making financial decisions, you will steer clear from blackmail and solicitation types of fraud. Also, you will have time to think everything over, double-check information and seek financial advice.

4. Tell me your PIN

You should never tell anyone your PINs, passwords, private keys, security codes, or other information that can be used to get access to your money. It seems to be obvious, but many people still fall for this trap. Scammers may approach you by email or phone call, say that they are from an exchange, trading platform, bank, or event tax authority. 

The stories they tell you may be different, but if they eventually asked to provide sensitive data, stop communicating with them immediately and report to the police. 

Remember that a real bank or cryptocurrency exchange manager may approach you in case of emergency, for example, in case of suspicious activity on your account. Still, they will never ask for private data. It is always better to contact the company over the official channels to clarify the information in this event.

By keeping in mind this simple rule, you will protect yourself from scammy emails that impersonate legitimate companies and won’t lose money even if your personal data was compromised. 

5. Use my seed phrase

Users concerned about security and privacy often purchase hardware wallets – special devices like USB drives that store private keys. However, in some cases, scammers preconfigure them with a set seed phrase hidden under a scratch card. Users are told to scratch the card and set up the wallet with the compromised seed. Once they do it, hackers can get access to their cold storage and drain all their money.

These scams have been gaining popularity recently. To avoid falling for this trap, make sure you purchase the device from an official reseller or manufacturer and never use second-hand wallets.