The Cryptocurrency-Cybercrime Connection

If you think you’ve been hearing more about cryptocurrency these days, you’re probably right. In the U.S. alone, an estimated 13% of Americans bought or traded cryptocurrency during a one-year period through late June 2021.¹ Additionally, in 2021, Morgan Stanley became one of the first major investment banks in the country to offer qualified investors access to cryptocurrency funds.

But as the world gradually adopts cryptocurrency, cybercriminals have been busy devising schemes leveraging its popularity to commit fraud. Fortunately, being aware of these dangers can help you avoid becoming a victim.

Cryptocurrency is a form of digital currency. It has no physical form - you can’t carry it in your pocket. Instead, you usually exchange cryptocurrency online directly with an individual or business without using a bank as an intermediary.

Cryptocurrency comes in a variety of types, with Bitcoin and Ethereum being the most popular.² You can purchase cryptocurrency through an online exchange and store the password anywhere including personal digital wallets or in your head (instead of a traditional bank account).

Digital currencies aren’t considered to be legal tender in the United States and no one is required to accept them as a form of payment. Also, payments made through cryptocurrencies are typically irreversible. Purchases can be refunded, but that depends solely on the willingness of the recipient; there aren’t any laws requiring an individual or business to do so.

Unlike the U.S. dollar, cryptocurrency isn’t backed by a government entity, and its value —which is solely dependent on current supply and demand—can be extremely volatile.

The technology used to conduct cryptocurrency transactions is generally considered to be secure when compared to other types of digital transactions, such as wire transfers or online banking.

However, online exchanges that buy and sell virtual currencies can be hacked, and your digital wallet can be comprised, too. So, it’s possible to lose all your cryptocurrency holdings. And since cryptocurrency isn’t backed by banks or government agencies, you may not recover your money.

Scams involving cryptocurrency include:  

According to the Federal Trade Commission, individuals reported losses of more than $80 million on cryptocurrency investment scams between October 2020 and May 2021.³ Those between the ages of 20 and 49 were five times more likely to report losing money on this type of scam than any other age group.⁴

Some of these investment scams follow familiar themes, such as the ability to make an extraordinary amount of money quickly with little or no risk. Or individuals may be encouraged to recruit other investors into an investment program—similar to a pyramid scheme—with the lure of higher returns based on the number of people brought into the program. One of these programs accumulated more than $700 million from investors before it was halted by federal authorities.⁵

Victims have also reported being targeted by fraudsters pretending to be investment managers who promised to grow their assets as long as the funds were sent as cryptocurrency. Sometimes scammers attract interest by falsely proclaiming that a celebrity or a well-known billionaire has endorsed an investment opportunity, and they’ll anonymously use chat rooms to drive speculation about this possibility.

In short, investment opportunities involving cryptocurrency should be thoroughly vetted before taking action. Carefully research any organizations or individuals involved and check consumer protection sites about potential scams associated with these entities. You may also want to consult with your Morgan Stanley Financial Advisor before investing. Any investment opportunity that requires cryptocurrency as the form of payment or demands immediate action automatically warrants additional caution.

Cybercriminals may claim to have sensitive materials about you—perhaps involving passwords, account information or private photos—and threaten to expose them unless you send a cryptocurrency payment. 

In many cases, fraudsters are simply trying to scare you and don’t have any of this information. But even if they do, making a cryptocurrency payment may not resolve the matter. Always report the extortion attempt immediately to the FBI.

Phony websites focusing on cryptocurrency—whether it purports to be for an investment opportunity or perhaps a digital currency exchange or digital wallet provider—are quite common. So, it’s best to only deal with well-established organizations related to cryptocurrency. Again, do your research first before sending any money.

Also, type the URL of an organization’s site directly into your browser instead of relying on search results that may lead you to a phishing site that mimics the authentic site. Cybercriminals create these phishing sites with the goal of capturing your digital currency payments or sensitive personal information, such as your log-in credentials.

These schemes often use social media posts to promote fake giveaways from actual companies or celebrities by either using forged screenshots or hacking into their accounts. You’re typically encouraged to send cryptocurrency to the provided digital address with a promised return of double the amount sent (or even more).

The giveaway is usually promoted as a limited-time offer to create a sense of urgency. (Fraudsters don’t want to give you time to think or ask others about the opportunity.) To legitimatize the giveaway, scammers may leave comments from phony social media accounts claiming to have received money.

These scams work well because it can be extremely difficult to retrieve cryptocurrency after it’s been sent, so victims have little recourse. One giveaway scam that pretended to involve a high-profile celebrity netted fraudsters over $2 million.⁶

• Employment scams featuring phony recruiters with fake jobs and bogus offer letters that attempt to initially obtain personal information about you and later request a cryptocurrency payment to start your job training

• Online romance scams featuring scammers who build a virtual relationship with you and eventually try to interest you in a cryptocurrency investment opportunity

• Impersonation scams using a fraudster acting as a representative of a government agency (such as the Social Security Administration) or perhaps a prominent cryptocurrency exchange, who will require that a payment be made in cryptocurrency

If you’re a victim of a cryptocurrency scam or notice suspicious activity, you should report it immediately to the following agencies:

• Federal Trade Commission

• Commodity Futures Trading Commission

• Securities and Exchange Commission

Cryptocurrency can be a fast, convenient and inexpensive way to pay for products or services, transfer assets or conduct other types of transactions online. It also has the potential to be used as a meaningful short-term or long-term investment.

But it’s important to realize that virtual currencies don’t have an established track record of credibility or trust and they’re not regulated or backed by any central bank worldwide. So, emphasize safety when using cryptocurrency and be vigilant about protecting yourself against cryptocurrency scams.