Crypto scam losses rocket to record high

Money lost to scams involving bitcoin since the start of this year already equal the entire losses of 2020.

Investment scams of all types are on the rise. The Australian Competition and Consumers Commission (ACCC) had $176 million in losses reported to it during 2020. In 2019, losses amounted to $143 million, up from $107 million in 2018.

However, it is scams involving bitcoin – the crypto of choice for most investors – that is seeing particularly strong growth.

ACCC deputy chair Delia Rickard says there are legitimate exceptions, but if your only option is to pay for something with cryptocurrency, that is a hallmark of a scamCredit: Fairfax Media

For the first five months of this year about $27 million in losses were reported to the ACCC where bitcoin was involved. In 2018, scams involving all cryptocurrencies [the ACCC did not then split out bitcoin] totalled just $6 million.

And Delia Rickard, deputy chair of the ACCC, says investment scam losses are significantly higher than the competition watchdog’s recorded numbers.

She says the ACCC receives only a fraction of the total reports of losses that are also reported to other government agencies and to banks. Many people that suffer big financial losses also fail to report them because they are too embarrassed that they fell for a scam.

Crypto scams can involve anything from fake digital currency investments or crypto wallets to bitcoin-stealing malware, or simply paying for goods with crypto that do not turn up.

It can even involve theft by computer hacking. Because of the anonymous nature of crypto, ransom-ware often demands payment in bitcoin.

There have also been warnings from the Australian Securities and Investments Commission (ASIC) about initial coin offerings, where investors buy new types virtual currency before they go live on hopes of big gains once they do.

ASIC says these are highly speculative investments. While there are some genuine businesses using this structure, many turn out to be scams.

The ACCC’s Rickard describes the big growth in crypto scams as “scary.” “Investment scams are ramping up and cryptocurrency is a big part [of that],” she says.

“Most people don’t understand cryptocurrency; they just hear the buzz around it... and they need to do their research,” Rickard says.

The chances of getting your money back after a crypto scam is “pretty much zero”, she says.

Rickard says one of the warning signs of a crypto scam is if the only option you are given is to pay with digital currency.

The scams can also sometimes include the exchanges that facilitate the buying and selling of crypto assets.

There have been some instances where crypto exchanges have suddenly stopped trading, cannot be contacted and investors have lost their money.

Exchanges are not regulated by ASIC, though a Senate inquiry is now investigating how to regulate them, as well as who to regulate virtual currencies.

Caroline Bowler, chief executive of crypto exchange BTC Markets, says the increase in scams involving crypto is partly reflective of the increase in popularity of digital currencies.

“Regulation in Australia would provide greater confidence for investors in crypto by ensuring that all exchanges operate appropriately,” Bowler says.

Better exchanges often “track and trace” crypto transactions in order to help protect investors from fraud, and criminals from transacting on them.

Industry body Blockchain Australia also confers certification on exchanges that comply with the Australian Digital Currency Industry Code of Conduct – a voluntary scheme that establishes externally auditable best-practice standards for businesses operating in the industry.

Millennials lead the charge

Millennials – those aged between 25 and 40 – are leading the charge into crypto investing. One estimate has one-in-five Millennials now owning cryptocurrency.

Since the onset of the coronavirus pandemic, many people have invested for the first time. Social media “finfluencers” are promoting “meme” investing, adding fuel to the fire.

The spectacular price rise of bitcoin has also drawn new investors to the cryptocurrency who are fearful of missing out.

Bitcoin was trading at about $13,500 last June and rocketed to more than $81,500 in April of this year. It has since settled back to about $48,000 but many investors are still well in the black.