‘Don’t see it as a get-rich-quick scheme’: How to avoid crypto scams and losses
Burnt in cryptocurrency dealings, two investors tell the programme Money Mind their advice for others who may wade into the ‘highly risky’ investment.
SINGAPORE: When Ms Goh joined cryptocurrency trading platform Torque — because some of her friends were on it — payouts were better than interest rates that banks were offering. There was also a chance that the cryptocurrencies would appreciate in value, she said.
The platform looked stable and appeared to be run by “reputable people”, added the investor, who declined to give her full name.
Trouble surfaced, however, as Chinese New Year approached this year. After a year of payouts that arrived like “clockwork”, which for her worked out at 0.014 per cent a day, they stopped.
Torque, which was incorporated in the British Virgin Islands, suspended investors’ accounts and went into liquidation.
Investors reported the platform to the police, and its chief executive Bernard Ong claimed that an employee’s unauthorised trading activities had led to significant losses in investors’ accounts, The Straits Times reported.
Ms Goh lost about S$30,000, she told the programme Money Mind.
While there are investors who have made big gains from Bitcoin and other cryptocurrencies in recent years, others have lost sizeable savings through poor investment decisions or scams.
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Singapore police received 533 reports of crypto-related cheating, fraud or other crimes between 2018 and last year, of which 393 were made last year. Investors lost around S$29 million.
This is despite Monetary Authority of Singapore (MAS) warnings that cryptocurrencies are volatile and “highly risky” investment products unsuitable for retail investors.
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Experts told Money Mind the main risks are bad investments in obscure coins, getting into crypto projects that fail and falling for scams.
EVER-EVOLVING SCAM TACTICS
Besides the unregulated nature of crypto, scammers are using stories of people who have struck it rich to “play on the greed of investors”, said Choo Oi Yee, chief commercial officer for private capital platform ADDX.
Two types of scams are the Ponzi scheme, whereby money from new investors serves as returns for earlier investors, and the “pump and dump”, she cited.
The latter occurs when scammers buy a coin and generate noise or misleading statements to push its price up, only to dump it after others start buying.
Scammers may also use third-party accounts to cover their tracks, said Hong Qi Yu, the founder and chief executive of digital trading platform Tokenize Xchange.
They may do so by hacking into the accounts, by coercing vulnerable individuals to allow their accounts to be used or by using unsuspecting individuals as money mules.
This is a more sophisticated tactic that can be used by syndicates to penetrate compliance frameworks and circumvent Know Your Customer checks that all banks and crypto exchanges must do, said Mr Hong.
Keeping up with the ever-evolving tactics of scammers is a challenge, so legitimate operators must enhance their surveillance to spot unusual activities, he added.
Another safeguard is to have “hot” and “cold” crypto wallets, he cited. The risk of the latter being hijacked is much lower because its key — a string of characters — that unlocks access to the crypto is disconnected from the Internet.
Crypto is complex, and investors who want some exposure to it should do their homework, said Ms Choo. Keeping risk diversification in mind, they may also not want to invest a lot in it.
More traditional financial institutions are starting to look into offering crypto funds or crypto-type products, which she said would offer a safer way to invest in crypto “because there are a few layers of protection, regulation and review”.
Cryptocurrency service providers are regulated in Singapore under the Payment Services Act, primarily for money laundering and terrorism financing risks.
Senior Minister Tharman Shanmugaratnam, the Minister-in-charge of the MAS, said in April that the central bank has been monitoring developments in the crypto assets space and will continue to adapt its rules to “ensure that regulation remains effective and commensurate with the risks posed”.
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Currently, digital payment token service providers do not need a licence to operate under the Payment Services Act while their applications — submitted before July last year — are being reviewed.
The exemption remains until those applications are approved or rejected or withdrawn by the applicant. No licence has been issued so far, but “several applications are in the final stages of review”, Mr Tharman said in a parliamentary reply this week.
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‘LEARN ABOUT WHAT YOU’RE BUYING’
Individuals who have got burnt in investments have these pointers for would-be crypto investors.
Ms Goh said that after Torque went into liquidation, she was “very lucky” that her coins on another crypto platform appreciated in value, and she was able to buy more.
She believes crypto is here to stay and has learnt to trade on her own. “Learn about what you’re buying. That’s very important,” she said.
“Learn how to use the (crypto) exchange because different exchanges have different fees. You can save a lot on fees if you’re using the right exchange for the right coins.”
Another investor, Andy (not his real name), learnt an “expensive and painful lesson” from an initial coin offering scam.
In 2018, an entrepreneur friend invited him to be part of the public sale of a new digital token, so he transferred Ethereum, another cryptocurrency, to the friend and received the new tokens.
After the initial coin offering, the tokens “became worthless at a very fast speed, and the value of the coin did not go back up”, Andy said. “That was when I realised that it was a scam.”
He and another friend lost a total of 35 Ethereums, which were worth about S$1,100 each at the time. The loss of about S$38,500 was roughly a fifth of their net worth.
Andy knew he had no legal recourse because crypto was not regulated and “nothing was written down on paper”.
After the experience, he decided that he would invest only in “very liquid” cryptocurrencies, such as Bitcoin and Ethereum.
Investors should do their due diligence, he said. Where possible, they should check whether financial entities are licensed or on any investor alert lists.
“The entire blockchain and cryptocurrency space is highly volatile. And the technology behind it is very difficult to understand, so unless you’re highly passionate about this whole landscape, don’t see it as a get-rich-quick scheme,” he added.
“The second thing is, when people approach you (about) investment opportunities and (if) it sounds too good to be true, most of the time it is.”
Watch this segment of Money Mind here. New episodes every Saturday at 10.30pm.