Crypto-assets: do they involve higher risk

Fraud and manipulation

Modification date: 26 November 2024

In the world of digital finance, whose development attracts more and more attention, there are people willing to get richer at the cost of others. What has been a domain of experts or a narrow group of interested persons in the past is now increasingly accessible to the mass audience, which, unfortunately, creates favourable conditions for various types of unfair practices. In the world of crypto-assets, characterised by fast development and limited regulation, fraudsters are ready to exploit other people's trust and lack of knowledge for their own benefits. Fraud related to crypto-currencies has become widespread, exploiting both technological loopholes and psychological manipulation mechanisms. For this reason, we point to various types and methods of crypto-currency fraud to help participants in that market understand threats and avoid potential losses.

Technological fraud

  • False websites and applications
    Websites which look like professional crypto exchanges but are created by fraudsters; people who invest their money there lose them forever.
  • False mobile applications
    Through such applications, crypto-currencies may be stolen from wallets or other malware may be installed.

What such a fraud may look like

  • Creation of a website or an application
    Fraudsters create a website or application that looks like a real crypto-currency exchange, an investment platform or a crypto-currency wallet.
  • Promoting a website or application
    Fraudsters promote a website or application through various communication channels, such as social media, online advertisements, e-mail or text messages.
    The website or application includes information about the opportunity of achieving high profits from purchasing a specific crypto-currency or low transaction fees.
  • Theft of crypto-currencies
    When users pay their crypto-currencies to a false website or application, they lose them forever.

Methods used by fraudsters

  • Impersonating well-known brands
    Fraudsters often impersonate well-known crypto-currency exchange or investment platforms to gain users’ trust.
  • False opinions and reviews
    Fraudsters may publish false opinions and reviews to make the website or the application look credible.

How to protect yourself

  • Stay prudent
    Never buy crypto-currency through websites or applications that you do not understand.
  • Check the address of the website
    Make sure you visit a real website of an investment exchange or platform.
  • Use strong passwords
    Never share your passwords to crypto-currency wallets with anyone.
  • Install antivirus software
    Protect your computer against malware.
  • Be sceptical
    Do not believe in everything you read online or on social media 

Typical crypto-currency fraud with the use of AnyDesk

  • A fraudster calls or writes to you and present themselves as an employee of a well-known crypto-currency exchange.
  • They encourage you to buy a crypto-currency and install a wallet to process a transaction and informs you about a problem with your account, e.g. unauthorised login attempt or suspicious activity.
  • The fraudster proposes to solve the problem with the account  through installing AnyDesk software on your computer.
  • After installing AnyDesk, they gain remote access to your computer and can:
  • steal your personal and financial data
  • change the addresses of crypto-currency wallets during transfers
  • install other malware.

The aim of the fraud is to steal crypto-currencies or personal data that may be used in other crimes.

How to protect yourself

  • Never install any software on your computer at the request of a person whom you do not know and whom you do not trust.
  • Check the website address and the telephone number of the exchange allegedly represented by the caller.
  • Use strong passwords and never share them with anyone.
  • Install antivirus and antispyware software.

Price manipulations in the crypto-asset market

  • Pump and dump
    A group of persons artificially pumps the price of a less popular crypto-currency to sell it later at a higher price when its popularity is higher.
    Persons who purchase crypto-currency at higher prices lose money when fraudsters sell them. 
  • Wash trading
    Fraudsters purchase and sell crypto-currency among themselves to create a false trading volume and artificially drive up the price. This may encourage other people to buy the crypto-currency at an overstated price.
  • Frontrunning
    Fraudsters use inside information about large purchase or sale orders to buy or sell crypto-currency before such orders and take advantage of differences in prices.
  • Insider trading
    Fraudsters use inside information, e.g. about planned issues  or partnerships to manipulate crypto-currency prices.
  • Use of bots
    Fraudsters use bots to automatically buy or sell crypto-currencies to manipulate prices .
  • False messages and gossips
    Fraudsters spread false messages and gossips about crypto-currencies to manipulate prices.

Pump and dump in the crypto-asset market

Pump and dump is a price manipulation scheme in which a group of persons artificially pumps the price of a crypto-currency to sell it at a higher price when it becomes more popular. Persons who purchase crypto-currency at inflated prices lose money when fraudsters sell them.

Pump and dump’ scheme

  • Selection of crypto-currency
    Fraudsters select a poorly-known crypto-currency with a low trading volume, which is easier to manipulate.
  • Promotion
    Fraudsters promote the crypto-currency on various platforms, such as social media, internet fora, chat groups.
  • False increase
    Fraudsters use bots or coordinated purchase to artificially boost the price of the crypto-currency.
  • Increased popularity
    An increase in price attracts the attention of other people, who start buying the crypto-currency, driving the rise even further.
  • Dumping
    When the price reaches its peak, fraudsters sell their crypto-currencies, deriving profit from the difference in prices.
  • Price drop
    When fraudsters sell their crypto-currencies, the price goes down abruptly and persons who bought them at an inflated price lose their money.

Methods used by fraudsters

  • Bots
    Fraudsters use bots to automatically buy or sell crypto-currencies to manipulate prices.
  • False messages and gossips
    Fraudsters spread false messages and gossips about crypto-currencies to manipulate prices.
  • Posing as influencers
    Fraudsters impersonate influencers on social media to promote crypto-currencies.

How to protect oneself against pump and dump:

  • Stay prudent
    Never buy crypto-currencies that you do not know and you do not understand.
  • Do your research
    Carefully check information about the crypto-currency you want to buy.
  • Check reliability of your sources
    Do not believe in everything you read online or on social media.
  • Be sceptical
    Do not believe promises of high profits with low risk.

Volatility of prices in the crypto-asset market

The market of crypto-currencies is well known for its high volatility. The prices of crypto-currencies may raise and fall abruptly. The changes may be caused by such factors as:

  • Supply and demand
    Crypto-currencies often give rise to speculation, which means that their prices may be driven by actions of buyers and sellers, inspired by emotions rather than the real value of assets.
  • News and events
    Positive or negative events about crypto-currencies or blockchain technology may impact their prices.
  • Market manipulation
    Fraudsters can manipulate the prices of crypto-currencies through pump and dump schemes.

Risks related to price fluctuations

  • Capital loss
    The purchase of crypto-currencies involves a high risk of capital loss. The prices of crypto-currencies may fall dramatically without any warning, which means that buyers may lose a substantial share of the funds.
  • Volatility
    Volatility of prices may make long-term financial planning more difficult.
  • Lack of liquidity
    Some crypto-currencies have a low trading value, which means that purchasing or selling them may be more difficult and may involve high fees.
  • Cybersecurity
    Crypto-currencies are an attractive target to cybercriminals: persons who possess them may lose their funds as a result of break-in or fraud.