With valuations of the UK cryptocurrency sector rising above £10 billion in 2024, and the percentage of adults in the UK who own cryptocurrency to 12% in 2024, it is unsurprising that digital assets are becoming increasingly common targets for online fraudsters.
In 2023 alone, Action Fraud reported that over £300 million was lost in the UK due to crypto scams.
As the size and value of the digital asset space continues to grow, fraudsters have devised a number of methods to steal from and deceive investors. Some of the more common methods to look out for include:
Investment scams
Illegitimate companies can lure investors with promises of high returns on cryptocurrency investments that do not exist. These scams frequently involve fake websites and social media advertisements, often featuring AI generated celebrity endorsements.
Pump and dump schemes
Pump and dump schemes have been gaining popularity rapidly since the start of 2024. Fraudsters will create a crypto coin, retaining large quantities for themselves at little to no cost. The creators will proceed to market the coin, usually via social media, and encourage casual investors to buy, which can result in a dramatic increase in price. As the value of the coin is peaking, the creators will suddenly sell the large quantity they have retained, crashing the value almost immediately. This can leave investors holding large quantities of a cryptocurrency that is entirely worthless.
Hacking and phishing
Often through malicious links contained within emails or fraudulent websites, hackers can embed malware onto an unknowing victim’s computer. When the individual later logs in to access their cryptocurrency wallet or exchange, the hacker can record their private key or recovery seed and use it to log in to their accounts and steal their digital assets.
Cryptocurrencies and similar digital assets are not always regulated in the same way as traditional financial investments. As a result, the same levels of protection are not always available from bodies like the Financial Conduct Authority. For example, whilst the FCA can get involved when someone is illegally promoting crypto assets to UK consumers, it will not reimburse you if the crypto provider goes bust in the same way if a bank went bust. This may change in the future.
If you think you may have been a victim of crypto fraud, there are some initial steps you should take:
- Seek legal advice
- Report what has happened to Action Fraud
- Contact your crypto exchange or wallet provider
- Contact your bank
In recent years, the court has affirmed that crypto assets are property. In doing so, they have opened the door for the use of injunctions and other legal weapons to be granted against those accused of cryptocurrency fraud or those holding stolen crypto currency (including crypto exchanges), creating a pathway for victims to potentially recover their assets. For more information on the legal weapons available to you to recover your assets, refer to our article: What to do if...you suspect your organisation is being defrauded by someone you have a commercial relationship with.
If you would like to discuss this topic any further, or would like legal advice related to cryptocurrency fraud tailored to your specific needs, please contact our team at Mills & Reeve.
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