The US Federal Trade Commission (FTC) has found that Americans lost more than $1bn worth of cryptocurrency to scammers since the start of last year, almost 60 times more than in 2018. 

FTC: 49% of crypto frauds start on social media

In a newly-published report, the government agency responsible for antitrust law and consumer protection revealed that 49% of fraud reports it received specified that the scam started on social media. This constituted a 12% rise on the year before (which was 37%) and a marked increase from the 18% and 11% figures recorded in 2019 and 2018, respectively. 

Describing social media and cryptocurrency as “a combustible combination for fraud”, the FTC stated: “The top platforms identified in these reports were Instagram (32%), Facebook (26%), WhatsApp (9%), and Telegram (7%).”

Bitcoin accounted for 70% of the cryptocurrency lost to scammers. Tether and Ethereum followed in second and third, amounting to 10% and 9%, respectively. The most popular form of scams reported to the agency in 2021 were bogus investment opportunities, with scammers claiming they can secure quick, easy and huge returns for ill-informed investors. 

Investors tricked by fake investment websites

Often the scammers establish fake investment websites and apps enabling investors to track their portfolios. In reality, the funds are transferred directly to the fraudsters’ wallets. The fake platforms also charge additional fees to extract further funds. 

While investment related schemes accounted for $575m of the fraud reported between January 2021 and March 2022, ‘romance scams’ were the second-most popular accounting for $185m. 

The scammers cultivate a romantic rapport online, often by lying about their wealth and success. Casual comments are eventually followed by tutorials or links to send funds. The median amount lost to romance scammers was $10,000. 

Lack of centralised authority appeals to fraudsters

The FTC argued that fraudsters like cryptocurrencies over traditional methods of exchange because “there’s no bank or other centralised authority to flag suspicious transactions and attempt to stop fraud before it happens.” Furthermore, cryptocurrency transfers cannot be reversed. 

The study found that, although Americans in their 30s were the age group hit hardest by scammers, older individuals had higher average losses. Whereas those aged 30 to 39 lost a median figure of $2,500, this sum stood at $11,708 for 70 to 79-year-olds and $8,100 for Americans aged 80 and older. 

Will rise in crypto frauds spark regulatory crackdown?

The marked increase in cryptocurrency-related fraud recorded by the FTC will only strengthen in the minds of US legislators the need for greater regulation. 

In March, US President Joe Biden signed an Executive Order (EO) outlining his administration’s desire to reduce the risks posed by the burgeoning crypto sector while maintaining the US’s position as a leader in technological innovation. 

The EO specifically directed FTC chair Lina Khan and Consumer Financial Protection Bureau director Rohit Chopra to jointly consider what privacy or consumer protection measures could be used to protect users of digital assets. They were also encouraged to weigh the need for digital anonymity with the importance of avoiding consumer deception.

Further reading

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Singapore deputy PM tells retail investors ‘steer clear of cryptos’