When Jonathan* stumbled across an Instagram account flaunting huge profits from cryptocurrency, he thought he’d struck a gold mine.
“I ended up messaging the person, and then she went on this long spiel about Bitcoin mining and how it’s really profitable,” the 23-year-old says.
The strategy, he was told, could produce eye-watering returns of 50 per cent per month.
He was initially sceptical so, in late 2017, he sent $50 in Bitcoin as a test. A month later, he was sent back his $50 along with another $30 of so-called profit.
So, he sent hundreds of dollars. Then thousands. Then he started telling friends and family, who sent even more money.
“One of my best mates sold his car for $10,000, and put all that money in, and it disappeared,” Jonathan says.
“I put a few thousand dollars in myself, and one of my other mates put in about $5,000. When [the scammer] had all our money at the same time, that’s when she disappeared.”
All up, Jonathan and his friends lost more than $20,000 to the scam. It’s caused immense stress and embarrassment, and some of his friends still don’t talk to him.
“It was like my integrity just vanished all of a sudden, because I’d convinced my friends. I’d shown them my profits, and I was actively promoting it, almost like a salesman for her,” he says.
“I went through a really rough emotional time after that.”
Why crypto scams are more popular than ever
Australians have lost tens of millions to crypto investment scams, and ASIC has seen an increase in activity since the start of the COVID-19 pandemic.
Scammers like to use Bitcoin and other cryptocurrencies because transactions are irreversible and don’t require disclosure of personal details.
For victims like Jonathan, it’s almost impossible to get money back.
“When I went to the police, they basically said, ‘You’ve only lost $20,000. We know people who have lost millions,'” he says.
The scams are getting increasingly more sophisticated, too. The account Jonathan discovered had thousands of followers, which added to its sense of legitimacy.
He was referred to other people on Instagram who endorsed the service, and there were testimonial videos. After a while, Jonathan was even asked to provide a testimonial video himself.
Another thing that eased his mind was that he was never approached — it was him who made initial contact.
“Then when I was looking at the account, I was seeing other people making a lot of money,” he says.
“And the way she advertised it was: hurry up, get in now, you can also be making this money.”
The red flags Jonathan ignored
In hindsight, Jonathan admits there were red flags. But while the profits were flowing in, he couldn’t bring himself to believe he was being duped.
At one point, while using a web service to transfer his cash to Bitcoin, Jonathan got a phone call querying why he was increasing his daily limit.
“I was talking about it with the guy there, and he was trying to convince me it was a scam,” he says.
The scam he fell victim to is much like a Ponzi scheme, where investors are paid with other investors’ money rather than profits.
Some of the largest crypto Ponzis, such as Bitconnect and USI-Tech, collected hundreds of millions of dollars from would-be investors before they collapsed.
Alex Saunders, a cryptocurrency commentator and former board member of Blockchain Australia, say the schemes often promise huge returns with low risk.
“They’ll say they’ve got a trading bot, or a service, where you can make 1 per cent a day. Or 10 per cent a month, or something like that,” he says.
“So people hear about that, and they give them all their Bitcoin. That’s a common type of scam.”
It’s important to remember that these kinds of investment returns are mathematically impossible.
A $100 investment compounded at 1 per cent each day would turn into more than $290 billion in just six years, making you the richest person in the world.
How to protect yourself from crypto scams
For Jonathan, a key lesson has been to be very sceptical of investment promises that seem too good to be true.
He still does some investing in the stock market now, but he only sticks to the most reputable platforms. And he’s staying away from cryptocurrencies, saying he “almost has PTSD” after the scam experience.
For Alex Saunders, the message is that scammers are everywhere online, and that you should assume the worst.
“People are just way too trusting online,” he says.
“Scammers are clever. They’ll work out ways to trick people into giving them their things. And one day all your crypto is gone.”
What to do if you suspect a scam
More information on crypto and investment scams
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