Bloomsbury blog The rapid rise of crypto scams

Bloomsbury blog post, 21 February 2026

Alongside the growing popularity of cryptocurrency, the prevalence of crypto scams has grown too. Law enforcement agencies have continued to raise alarm bells about the huge amount of fraudulent activity in the crypto space. In this post, we break down the most common types of crypto "investment" scams and examine some notable examples from the last decade.

The scale of the problem

In 2024, the FBI estimated that losses from crypto "investment" fraud in the US totalled over US$5.8 billion. This was a 47% increase from 2023 and a staggering 126% from 2022.

The scale of crypto "investment" scam losses is huge, but so are the number of investors who get duped. Binance, the world's largest cryptocurrency exchange, surveyed nearly 30,000 cryptocurrency users across Asia. The survey found that 41% of users experienced some form of exposure to crypto-related scams. Social media sites were cited as key channels for spreading these scams. This survey is backed up by other evidence, including a Toronto Metropolitan University report which found 35% of Canadian crypto users experienced fraud, scams, or criminal victimisation. A similar report in the US found that one-third of crypto users in the US were victims of a fraudulent crypto-related website, app, or investment scam at some point.

What makes crypto users so vulnerable to investment scams? Most crypto schemes involve novel technologies, which might make it hard for investors to discern scams from genuine businesses. Crypto transactions are permanent and irreversible, which makes it easier for scammers to get away with it and harder for victims to recoup their losses. It's also easier for crypto scammers to maintain their anonymity compared to other fraudsters. Since it's a relatively new asset class, regulation remains less effective at protecting users from crypto frauds, especially when compared to owners and users of traditional assets.

1. Pump-and-dumps

Crypto pump-and-dumps occur when insiders, who have large holdings in a crypto asset and are often celebrities or influencers, aggressively promote a token to inflate its price. These insiders usually use social media to build hype, create a fear of missing out, and make false claims about future returns. This hype inflates the price of the token (the "pump") as ordinary people bid up the price to take advantage of the opportunity. Then, the insiders sell their own large holdings at the inflated price (the "dump"), crashing the market and tanking the token's price. Now, without any reason to promote the asset, the insiders move on as if the token never existed.

The most egregious recent example of a crypto pump-and-dump scheme is the Save the Kids token scandal. Launched in June 2021, Save the Kids was promoted as a charity-focused cryptocurrency that would donate a portion of each transaction to children's causes. The project was heavily endorsed by several popular gaming influencers associated with the esports organization FaZe Clan, who claimed it would "change the lives of children." Soon after launch, however, the token's price spiked sharply, only to collapse within days.

Investigations revealed that the insiders who promoted the token had sold their holdings almost immediately after launch, profiting from the surge in demand they helped create. The developers had also quietly altered the project's code before launch, removing anti-"dump" mechanisms that were supposed to prevent large early selloffs. Within a week, the token was virtually worthless, and the influencers involved faced significant backlash and, in some cases, suspension from their organisations. The Save the Kids scandal remains a textbook case of how celebrity-driven hype and social media promotion can be used to manipulate ordinary people who use cryptocurrencies.

2. Rug pulls

A crypto rug pulls occurs when the developers of a crypto asset drain liquidity or completely disappear with users' funds, which makes it impossible for others to sell or withdraw. Rug pulls are similar to pump-and-dumps in that insiders take advantage of ordinary people to make returns for themselves. However, in a rug pull, the victims' funds are directly taken or locked, not just devalued.

The most infamous example is AnubisDAO. In October 2021, the project raised nearly US$60 million in Ethereum within 24 hours. Then, just as quickly, the liquidity vanished. Token-holders were left with worthless tokens and the anonymous developers disappeared. AnubisDAO demonstrated just how quickly rug pulls can unfold and how little can be done to recoup funds.

3. Ponzi and pyramid schemes

Ponzi and pyramid schemes aren't new, but crypto markets have given them a new lease on life. These scams promise consistent, high returns regardless of market conditions. Instead of generating profits, these Ponzi schemes pay early "investors" with deposits from new ones. Pyramid schemes add a referral or multi-level marketing structure, rewarding participants for recruiting others.

The most notorious example of a crypto Ponzi scheme is BitConnect. Launched in 2016, BitConnect promised 1% daily returns through a mysterious trading bot that generated profits regardless of market conditions. For a while it worked, early "investors" received payouts and the token's market cap soared into the billions. But in 2018, regulators investigated, the platform collapsed, and the token's value plummeted to near zero.

4. Exchange or platform fraud

Not all scams come from obscure tokens or crypto projects. Sometimes, the fraud is embedded in the platforms people trust to hold their assets. Exchange or platform fraud happens when mismanagement or outright illegality occurs in a centralised exchange or lending platform. Incidences of widespread fraud have repeatedly been identified in these new poorly regulated crypto exchanges.

A very famous recent example of this is FTX. FTX, founded by Sam Bankman-Freid, was once one of the largest and most respected crypto exchanges in the world. It dramatically collapsed in November 2022 after revelations that it had co-mingled customer deposits with its sister trading firm, a crypto hedge fund called Alameda Research. FTX had used customers' bank deposits to cover Alameda's investment losses. When spooked customers rushed to withdraw funds, FTX collapsed. Billions of dollars in assets were lost.

The bankruptcy and subsequent criminal investigation exposed a web of mismanagement, deception, and flagrant fraud. Mr. Bankman-Freid, at one point the 41st richest American and had testified in front of Congress as an expert on cryptocurrency regulation, was sentenced to 25 years in prison and ordered to pay billions of dollars in damages.

FTX are the most notorious crypto exchange fraudsters, but there are others. Mt. Gox and TerraForm Labs (the TerraUSD/LUNA collapse) are other infamous cases of exchange or platform fraud.

Only gamble money that you can afford to lose

Cryptocurrency users are uniquely vulnerable to scams. Although Ponzi schemes and pump-and-dumps exist outside of crypto, traditional asset markets have more transparency and regulatory oversight, which makes these scams harder to pull off. In crypto, the lack of oversight, the permanence of transactions, and the ease of anonymity make scams far more common.

If you choose to hold crypto, it should only ever be money you are prepared to lose entirely. As we mention above, crypto "investment" scams are up 126% from 2022, and 30-40% of crypto users report being exposed to crypto fraud.

Even if you avoid being scammed, crypto markets are still hugely volatile. On the 10th of October, US$500 billion of crypto market cap vanished within 24 hours, with an estimated 1.6 million trading accounts wiped out in that period. This crash should serve as a reminder that even if you are one of the lucky users that avoid exposure to crypto scams, you could still lose everything very, very quickly.