Cryptocurrency has been a breeding ground for fraud and scams, a trend that can be traced back to significant events like the 2014 collapse of the Mt. Gox exchange, which resulted in massive Bitcoin losses. The very nature of cryptocurrencies, which includes their widespread acceptance among criminals, transaction anonymity, and the allure they hold for the public as potential pathways to quick wealth, makes them particularly attractive for fraudulent activities. The cryptocurrency space gained significant mainstream traction during the Bitcoin surge in 2017, but it has seen an even more dramatic rise in popularity since 2020, particularly after the Federal Reserve’s decision to lower interest rates to zero, prompting investors to seek out riskier assets. Notably, even political figures such as former President Donald Trump have entered the cryptocurrency arena, with his own coin ($TRUMP) and First Lady Melania Trump launching her token ($MELANIA). This surge in cryptocurrency’s visibility has also been accompanied by a wave of fraud cases, including instances of “rug pulls,” where creators withdraw funds intended for their projects and vanish. Below are five of the most significant scandals in the cryptocurrency world.
### The Dangers of Investing in Cryptocurrency
The prevalence of scams in the cryptocurrency market highlights the inherent risks associated with investing in this sector. One of the largest and most notorious incidents involved FTX, once a leading cryptocurrency exchange that collapsed amid the 2022 market downturn. FTX was expected to hold approximately $11.3 billion in client assets linked to its hedge fund, Alameda Research. However, only $2.3 billion was actually recoverable, as the company had misappropriated customer funds for its own use, an act labeled as embezzlement by the U.S. Department of Justice. FTX subsequently filed for bankruptcy in November 2022, and its founder, Sam Bankman-Fried, was convicted of fraud and money laundering conspiracy, receiving a 25-year prison sentence in March 2024.
### Binance’s Legal Troubles
In November 2023, Binance Holdings, the entity behind the prominent Binance exchange, pleaded guilty to multiple charges, including violations of the Bank Secrecy Act and failing to register as a money-transmitting business. The company agreed to pay over $4 billion in penalties. Concurrently, CEO Changpeng Zhao admitted to not maintaining an effective anti-money laundering system, leading to his resignation. Treasury Secretary Janet L. Yellen remarked that Binance’s failures had enabled illicit activities, including financing terrorism and child exploitation, through its platform. Founded in 2017, Binance rapidly ascended to become the world’s largest cryptocurrency exchange.
### The Turbulent Year of 2022
The year 2022 proved challenging for the cryptocurrency market, as rising interest rates drove away risk-averse traders. This general decline in confidence contributed to the downfall of Terra USD, a stablecoin that was supposed to maintain a one-to-one value with the U.S. dollar. In May 2022, traders began selling off the stablecoin, which, due to various technical issues, struggled to hold its value. This initial decoupling from the dollar led to a rapid decline in value, rendering the stablecoin nearly worthless within days, making it one of the first major failures of the year as the Federal Reserve raised rates in an effort to combat inflation.
### The Squid Game Coin Scam
Launched in 2021, the Squid Game coin sought to capitalize on the popularity of the hit Netflix series “Squid Game,” promoting a “play-to-earn” online game tied to the show. However, the developers treated investors no better than the show’s contestants. This project turned out to be a classic rug pull, with the founders disappearing shortly after launching the coin, having stolen $3.36 million from investors. Despite the coin’s value soaring to around $2,861 shortly after launch, it quickly plummeted to mere cents in value, highlighting the risks of such scams and raising awareness among crypto traders about the concept of rug pulls.
### The Argentine $LIBRA Incident
In February 2025, Javier Milei, Argentina’s president, endorsed a cryptocurrency named $LIBRA on social media, claiming it would support the growth of small businesses within the country. Following the promotion, a significant influx of investment occurred. However, insiders holding the majority of the cryptocurrency quickly sold off their holdings, taking an estimated $250 million with them, which resulted in a catastrophic crash of the coin’s price by 90% or more. Interestingly, the marketing team behind this scheme was also linked to Melania Trump’s cryptocurrency launch. Donald Trump’s cryptocurrency venture reportedly led to cumulative losses of $2 billion for approximately 800,000 investors, as reported by the New York Times.
### Factors Contributing to Cryptocurrency Scams
Cryptocurrency is frequently connected to scams for several reasons: the allure of quick wealth can transform perceived investments into mere lottery tickets, attracting scammers who exploit victims’ lack of understanding. Many individuals are not well-versed in how cryptocurrencies function or the importance of safeguarding their digital assets, making them vulnerable to exploitation. Moreover, most cryptocurrencies lack backing by tangible assets or a sustainable business model, allowing virtually anyone to create a cryptocurrency, even with minimal investment. The semi-anonymous nature of cryptocurrency transactions makes it especially appealing to criminals, who can use it to facilitate illicit activities, including extortion and money laundering. Additionally, once a transaction is completed, it is irreversible, meaning that stolen funds are typically unrecoverable. These attributes create a fertile ground for scammers to operate, taking advantage of public ignorance and the desire for quick riches.
### Conclusion
Given the inherent risks in the cryptocurrency space, investors must exercise caution and remain vigilant against potential scams. It is crucial for traders to understand the volatility and dangers associated with cryptocurrency investments.
### Editorial Disclaimer
All investors are encouraged to perform thorough independent research regarding investment strategies prior to making any investment decisions. Furthermore, it is important to note that historical performance of investment products does not guarantee future appreciation in value.
