SEC Chair Gary Gensler has issued new warnings regarding cryptocurrencies in light of Bitcoin reaching a new all-time high. He has emphasized concerns about potential abuses and fraud in the crypto space, advising investors on the speculative and volatile nature of Bitcoin.
While Gensler did not directly address pending applications, he did point out broader challenges within the crypto industry. These include risks related to intermediaries pooling digital assets without sufficient disclosures, potentially endangering investors.
Recent data indicates that the increase in crypto fraud is linked to the surge in Bitcoin’s value.
In 2023, saw the highest instances of cryptocurrency fraud.
According to data from Chainalysis, scams continued to be a major contributor to cryptocurrency-related crime in 2023, generating revenue of at least $4.6 billion.
The FBI’s Internet Crime Report for 2023 revealed that losses from cryptocurrency investment scams in the United States surged to $3.94 billion, a 53% increase from the previous year’s $2.57 billion. In 2023, investment scams became the most prevalent internet crime, accounting for over a third of the total reported losses of $12.5 billion.
Ransomware attacks also experienced an 18% increase in 2023, with reported financial losses skyrocketing by 74% to a total of $59 billion. These statistics highlight the substantial threat posed by cybercriminals, particularly to critical infrastructure sectors.
Online fraud losses surpassed $12.5 billion in 2023, marking a 22% increase from the previous year. Business email compromise scams, targeting both companies and individuals, contributed $2.9 billion to the total losses in 2023.
What is causing the increase in fraud?
During periods of bullish market sentiment, there is an increased interest in high-yield opportunities.
Research conducted by Chainalysis indicates that scams typically yield lower revenue during cryptocurrency market downturns, as illustrated in the graph correlating scam revenue with Bitcoin prices in 2022.
Most popular schemes
Chainalysis reported that scams continued to play a major role in cryptocurrency-related crime in 2023, bringing in revenue of at least $4.6 billion.
The BBB’s annual report on scams in 2023, based on 67,000 scam reports, revealed the inventive tactics scammers employ to deceive investors. According to the BBB, around 80% of Americans targeted by cryptocurrency and investment scams in 2022 experienced financial losses. Additionally, the number of individuals reporting losses due to romance scams rose by over 300% compared to 2022.
Pump and dump schemes are widespread, exploiting newly minted tokens to artificially raise prices, enabling scammers to profit at the highest point. Chainalysis points out that out of the more than 370,000 tokens introduced on Ethereum in 2023, only a small fraction achieved substantial liquidity.
Romance scams have seen a dramatic surge, increasing 85-fold since 2020. These scams typically begin on dating apps, with scammers gradually building trust before persuading victims to invest in cryptocurrencies together, resulting in significant financial losses.
The Better Business Bureau (BBB) reported that cryptocurrency and investment scams have emerged as the most perilous form of fraud in the U.S., with fraudsters frequently bilking victims out of thousands of dollars.
Based on the BBB’s annual report on the largest scams of 2023, which analyzed 67,000 scam reports, scammers have developed innovative tactics to deceive investors. Approximately 80% of Americans targeted by these scams ended up losing money, with the median loss amounting to $3,800.
Hackers
Hackers frequently reach out to individuals through social media, video game platforms, or text messages, touting their financial gains from cryptocurrency investments. They then convince the victims to invest as well.
The rise in hacking incidents coincided with heightened investment by U.S. investors during the pandemic, resulting in losses from cyberattacks on platforms with inadequate cybersecurity measures. For instance, North Korean cybercriminals alone pilfered $1.7 billion in cryptocurrency, marking a new record and emphasizing the significant impact of cryptocurrency theft on the nation’s economy.
As scammers employ increasingly sophisticated tactics, such as romance scams, detecting associated addresses becomes more challenging. Romance scammers often communicate directly with victims through private channels like text messages, complicating the task for blockchain analysts to flag these addresses as scam-related.
This likely contributes to the underreporting of scam activity, particularly in recent years as romance scams have become more widespread.