Cryptocurrency has been linked to various fraudulent activities and scams for many years, with the notorious Mt. Gox exchange collapse in 2014 serving as a prominent example. The nature of cryptocurrencies, which includes their widespread use among criminals, the anonymity of their transactions, and the naivety of many investors who view them as a quick route to wealth, makes them particularly appealing for fraudulent schemes. While cryptocurrencies gained significant attention during the Bitcoin surge in 2017, their popularity skyrocketed post-2020, driven by the Federal Reserve’s decision to lower interest rates to zero, which prompted investors to seek out riskier assets. Notably, former President Donald Trump has entered the cryptocurrency arena with his own coin, $TRUMP, while First Lady Melania Trump has also launched her cryptocurrency, $MELANIA. Trump’s involvement has highlighted his support for cryptocurrency, including the establishment of the U.S. Strategic Bitcoin Reserve. However, this rapid rise in cryptocurrency’s mainstream presence has also led to an increase in scams, financial collapses, and "rug pulls," where developers vanish with investors’ funds. Below are five major scandals that exemplify the risks associated with cryptocurrency investments.
Major Cryptocurrency Scandals
The prevalence of scams in the cryptocurrency realm underscores the inherent dangers of investing in this sector.
1. FTX
FTX emerged as one of the largest cryptocurrency exchanges globally and became infamous for its collapse following the downturn in crypto markets in 2022. Despite claims that FTX held $11.3 billion in client assets through its hedge fund arm, Alameda Research, only $2.3 billion was actually located. The U.S. Department of Justice labeled the situation as embezzlement, as FTX misappropriated customer funds for its own use. In November 2022, FTX filed for bankruptcy, and its founder, Sam Bankman-Fried, was later found guilty of fraud and money laundering conspiracy, receiving a 25-year prison sentence in March 2024.
2. Binance
In November 2023, Binance Holding, the company behind the prominent Binance exchange, admitted guilt to numerous offenses, including breaches of the Bank Secrecy Act and the failure to register as a money-transmitting entity. The firm agreed to pay over $4 billion in fines. Concurrently, CEO Changpeng Zhao pleaded guilty to not maintaining an adequate anti-money laundering program and resigned from his position. Secretary of the Treasury Janet L. Yellen noted that Binance’s negligence allowed illicit funds to flow through its platform, benefiting criminals and terrorists. Founded in 2017, Binance quickly rose to become the largest cryptocurrency exchange globally.
3. Terra USD Cryptocurrency
The year 2022 proved challenging for the cryptocurrency market, particularly as rising interest rates drove cautious investors away. This lack of confidence contributed to the collapse of Terra USD, a stablecoin that was meant to be pegged to the U.S. dollar. In May 2022, a wave of selling pressure caused the coin to break its dollar peg due to technical difficulties. Following this slip, the value of Terra USD plummeted dramatically within days, marking one of the first significant collapses in the crypto market amid the Federal Reserve’s aggressive interest rate hikes aimed at combating inflation.
4. Squid Game Coin
Launched in 2021, the Squid Game coin capitalized on the success of the Netflix series of the same name, claiming to offer a "play-to-earn" gaming experience. However, the developers of this coin treated investors similarly to the way the show’s contestants were treated, executing a classic rug pull. Just days after its launch, the founders vanished with $3.36 million raised from investors, leading to the coin’s value crashing from a peak of about $2,861 to less than a cent almost overnight. Although the total value lost was relatively small, the incident gained significant media attention, educating many crypto investors about the risks of rug pulls.
5. LIBRA
In February 2025, Argentina’s President Javier Milei promoted a cryptocurrency called $LIBRA, claiming it would help stimulate the Argentine economy by supporting small businesses and startups. Following this announcement, millions of dollars flooded into the coin. However, within hours, insiders who held most of the cryptocurrency sold off their stakes, netting an estimated $250 million, which led to a crash of over 90% in the coin’s value. Interestingly, the marketing team behind this scheme was also responsible for launching Melania Trump’s cryptocurrency. Additionally, it has been reported that Donald Trump’s own cryptocurrency resulted in cumulative losses of $2 billion for approximately 800,000 investors.
Why is Cryptocurrency Linked to Scams?
The association between cryptocurrency and scams can be attributed to several key factors:
Get-rich-quick mentality: The allure of quickly amassing wealth through cryptocurrency often leads individuals to treat investments as a gamble rather than a strategic financial decision. Although some cryptocurrencies have indeed experienced meteoric rises, a vast number are ultimately worthless, leaving many investors vulnerable to scammers.
Public ignorance of cryptocurrency: A general lack of understanding about how cryptocurrencies function and the importance of safeguarding digital assets makes it easy for scammers to exploit unsuspecting victims.
Lack of backing for many cryptocurrencies: Most cryptocurrencies do not have tangible assets or the revenue streams typical of traditional businesses. This allows individuals to create and market coins, often with minimal investment, as enticing opportunities despite their lack of real value.
Ease of creating cryptocurrencies: With approximately 37 million cryptocurrencies reportedly existing by March 2025, anyone can launch a new coin, which heightens the chances of scams.
Semi-anonymous transactions: The ability to conduct transactions with a degree of anonymity draws criminal elements who utilize cryptocurrencies for illicit activities, including extortion and money laundering.
Facilitation of criminal activities: The anonymity provided by cryptocurrencies makes them attractive for criminals looking to carry out illegal transactions without detection.
Irreversibility of transactions: Once a cryptocurrency transaction is completed, it is irreversible, complicating any attempts to recover stolen funds. This permanent nature of transactions enables criminals to abscond with victims’ money without fear of recourse.
These factors collectively create an environment conducive to scams, making it essential for potential investors to remain vigilant.
Conclusion
Cryptocurrency serves as a prime vehicle for criminal activity, and the combination of public ignorance and the allure of quick wealth fosters an environment ripe for scams and fraud. Investors must be aware of the potential risks associated with crypto trading and take steps to protect themselves from fraudulent schemes.
Editorial Disclaimer: Investors are encouraged to conduct their own thorough research into investment strategies before making any decisions. Additionally, past performance of investment products does not guarantee future appreciation in value.
