By: Gerelyn Terzo of Sharemoney
Cryptocurrencies have become mainstream. In Australia, 600,000 locals have dabbled in crypto assets at one point or another. Unfortunately, rising demand has made the blockchain industry a prime target for bad actors looking for an easy payday. As the industry matures, regulation is being formulated, but it is not yet formalized, leaving investors vulnerable to the latest wave of scams and frauds.
Cryptocurrency-related scams came with a hefty price for Australians last year. In the first half of 2021 alone, Australians lost $50.5 million to investment scams, $25.7 million of which involved cryptocurrencies, according to Scamwatch data. Bitcoin scams are growing down under, with the total sum of lost funds from crypto-related schemes in H1 2021 up 44% vs. full-year 2020.
Australians submitted over 2,200 reports to Australian authorities about being duped into losing crypto. Not surprisingly, most of the crypto-related schemes involved bitcoin, the leading coin with a market capitalization of $873 billion at last check. While crypto scams were the most prevalent, they weren’t the only cons plaguing investors. Scammers were also behind criminal investment activity involving bonds, Ponzi schemes, and social media ads.
Crypto scammers are well versed in tricking investors into trusting them. Their methods involve posing as sophisticated traders with proven systems supporting them or capitalizing on familiarity by getting celebrity endorsements to make them look trustworthy.
Fraudsters have been known to deliver some returns to new investors to keep them on the hook. However, they do this by stealing from the investment pool of other victims before the unsuspecting lot is left holding the bag. In some cases, scammers use dating sites to establish trust and convince unsuspecting users to give their money toward cryptocurrency scams.
Delia Rickard, deputy chair of the Australian Competition & Consumer Commission (ACCC), advises investors that if an opportunity seems too good to be true, it usually is. She says to be skeptical of investments that promise oversized returns with little risk.
Major celebrities from Kim Kardashian to famous boxer Floyd Mayweather to former NBA player Paul Pierce have been accused of endorsing scam crypto projects. In particular, they are accused of putting their influence behind a crypto project called EthereumMax, which ultimately turned out to be a pump-and-dump scheme. While this was not specific to Australia, it underscores investors’ risks in the burgeoning blockchain industry.
In some cases, celebrities themselves are the targets of crypto scams. Aussie billionaire Andrew Forrest, the country’s second-wealthiest person, had his likeness used in crypto scams advertised on the social media platform Facebook.
After trying to no avail to get Facebook to remove the fraudulent advertisement, Forrest is suing Mark Zuckerberg’s company. The Fortescue Metals founder and chairman claim that Facebook broke Australia’s anti-money-laundering rules by running the fake celebrity-endorsed crypto ad.
Australian investors, in particular, were targeted by a recent crypto scam in which the criminals built phone apps designed to siphon funds from unsuspecting victims. The rise of fake crypto apps unfolded in the six months leading up to November 2021, as evidenced by dozens of reports that poured into the ACCC, resulting in losses of AUD 374,000 for investors. This estimate is considered conservative, as only a small group of victims (13%) are said to have reported the incidents.
One Aussie investor spotlighted by ABC News is an engineer named Paul. He explained that while he is no stranger to online banking, he was new to crypto when he fell for a scam. Paul described how he poured AUD 5,000 into an emerging crypto ecosystem dubbed Cake Monster, which is a real decentralized project on the Binance Smart Chain. The problem arose with an outside crypto wallet.
Considering that a digital wallet is required to transact in crypto, Paul went to the Google Play Store to research his options. He chose a product called WalletConnect, which has a valid product. However, it does not have a mobile app and therefore was not behind the app published on the Play Store. Despite what appeared to be the real deal, including positive reviews, the WalletConnect app was a fake.
After downloading a phony app, Paul shared his coveted “seed phrase” with the scammers. This is the only way to access funds from a crypto wallet, users are urged to keep this information private at all costs. While the investor had reservations about disclosing the phrase, he did so anyway. Shortly after that, Paul received a phone alert about a transaction he did not authorize. The scammers had “emptied” the crypto funds from his wallet.
In response to an ABC query, Google said, “When violations are found, we take action.”
While the rules for the cryptocurrency industry are still being written, Australia is making efforts. The Aussie government is planning a complete overhaul of the country’s payments system, the likes of which hasn’t occurred since the days of the dot-com boom, and digital assets are said to be the catalyst.
While lawmakers can’t prevent crypto losses altogether any more than they can ensure returns in an asset class like stocks or art, they can implement guardrails to protect consumers from scams. Government officials are focused on:
- Crypto taxes
- Investor protection
- Regulating digital banks, brokers, and crypto trading platforms
Once cryptocurrency regulation is formalized, more Aussie merchants are expected to accept digital assets as a payment method.
The timing is no coincidence, as crypto adoption is rising in Australia. For example, over 100 BP petrol stations run by On The Run across South Australia are gearing up to accept bitcoin as a payment method this summer.
Meanwhile, the bitcoin price is currently trading close to its high for the year at almost $46,000. Bitcoin set a fresh all-time high in November 2021 of nearly $70,000, as it stays true to form as a volatile asset. During bullish market cycles, investors tend to catch a case of fear of missing out, or FOMO, which drives them into the crypto market.