The world today is awash with new technologies, and the crypto world is no exception. Despite its promise of decentralization and increased financial freedom, the cryptocurrency market remains largely unregulated, making it ripe for fraudulent activity. This year, the UK has seen a 40% surge in losses from cryptocurrency-related scams, as reported by Finance Magnates.
According to the report, the total amount lost to crypto scams in the UK hit £30 million ($42 million) through 2021, up from £20 million ($28 million) in 2020, as people fell to the promises of high returns on investments. The data, which was obtained from the Action Fraud hotline for fraud and cybercrime, highlighted a worrying trend of increased exploitation of cryptocurrencies in fraudulent activities.
The UK’s Financial Conduct Authority (FCA) has warned about the risks associated with investing in digital assets, which can include frauds involving fraudulent cryptocurrency schemes, fake initial coin offerings (ICO), and hacked cryptocurrency accounts, among others. However, while some investors’ losses are the result of genuine hackings or other security breaches, the report indicates that many people are falling victim to online scams originating from fraudulent actors masquerading as investment traders.
The rise in crypto frauds is indicative of the increasing popularity of cryptocurrencies, as more and more people turn to digital assets as an alternative to traditional investment products weighed down by government regulations, high fees, and slow processing times. Additionally, the COVID-19 pandemic, which created economic uncertainty, also had a profound impact on people’s willingness to invest in cryptocurrencies, as a rush to “safe” assets pushed up the price of Bitcoin, Ether, and other digital coins.
Many of the scams involve online “trading platforms” or websites advertising expensive products or services that do not exist. Fraudsters often make use of social media channels, including Facebook and Instagram, to make false claims about cryptocurrency investments, boasting high returns and exaggerating their credentials to win over unsuspecting investors.
Fraudulent activities in the crypto market in the UK have led to the formation of crypto task forces designed to protect UK investors from the thousands of initial coin offerings (ICOs) launched each year, many of which are fraudulent.
The FCA has also put in place strict regulations and guidelines for companies and individuals involved in cryptocurrencies, including a ban on major cryptocurrencies sold to retail investors, like Bitcoin, through ETNs (exchange-traded notes) and CFDs (contracts for difference). The authority has also called for a review of the funding and regulatory framework for crypto exchanges and other businesses in the industry.
With the rise of the crypto market and the ease with which scammers can exploit unsuspecting investors, the cryptocurrency industry needs to look at better ways to prevent frauds, including increasing public awareness and regulation.
There is no denying that the cryptocurrency market has huge potential, but it comes with significant risks. While much of the blame for losses to fraudulent behavior can be attributed to the investors themselves, everyone in the cryptocurrency industry has a responsibility to work towards ending these scams.
The crypto market needs to continue to educate both investors and new entrants to the market about the risks associated with digital assets. By working together, regulators and market participants can build a safer and more transparent environment for cryptocurrency trading that benefits everyone invested in its long-term future.
In conclusion, the rise in the UK’s crypto fraud losses should serve as a warning to all investors, and caution them to be on the lookout for scams and other fraudulent activities. With the growing popularity of cryptocurrencies and the potential for significant returns on investment, there will always be a risk that bad actors will seek to exploit the market for their own financial gain. The key is to remain vigilant, stay informed, and ensure careful consideration before investing any money.
Crypto fraud losses in the UK surged by more than 40% in the past year, hitting £306m ($407m) and surpassing the £300m threshold for the first time ever. The data, which was provided by Action Fraud, the UK’s fraud reporting agency, shows the extent of cybercrime and highlights the collapse of crypto exchange FTX last year, which triggered numerous losses among retail investors. A third of total crypto fraud losses (£115.7m) occurred in November 2022, the same month FTX filed for bankruptcy. The Bahamas-based company, which was valued at $32bn less than a year before, had been hit by an industry-wide crypto sell-off which saw the value of bitcoin drop by more than 60% since its high of just over $69,000 in November 2021.
Pinsent Masons, a UK-based law firm, said the data underscored how widespread crypto crime had become. The firm’s fraud expert, Jennifer Craven, added there had been a sharp increase in English High Court actions filed by victims of crypto fraud who were keen to recover their losses through civil means. Furthermore, more than 40% of all reported crimes in England and Wales last year were fraud scams, according to the Office for National Statistics. In the wider context, cryptocurrencies like bitcoin remain largely unregulated in the UK, but authorities say draft proposals for crypto asset regulation have been prepared and will include new rules regarding the ringfencing of customers’ cash in the event of insolvency.
The UK government’s national fraud strategy, which was released earlier this month, contains a blueprint of how it intends to counter financial crime. One of the key targets within the plan was to impose an outright ban on cold calls that promote any form of financial or investment products. However, companies called for tougher rules to be enforced on online platforms where the majority of scams originate; many believe the strategy failed to go far enough to combat financial fraud.
The increase in actual losses suffered by individuals could force regulators and lawmakers to accelerate plans to regulate the space beyond the proposed legislation the UK Treasury is presently working on. MPs on the House of Commons Treasury Select Committee said that cryptocurrencies should be regulated like the gambling sector, given it had “no intrinsic value, huge price volatility and no discernible social good”.
RPC, which compiled the data on behalf of Action Fraud, said the losses could also reflect the collapse of crypto-related Ponzi schemes that were unable to continue as the values of the cryptocurrencies they were based on plummeted. While the data highlights losses for investors, it also underlines the marked increase in crypto-related crime seen across the UK and elsewhere. Failure to tackle the issue could lead to crypto losing legitimacy and contribute to an ongoing regulatory clampdown.
