Crypto is often portrayed as a way to make money quickly. So, at a time when we’re all worried about money, it’s unsurprising that people are being drawn in. But crypto is a high-risk investment that’s unregulated in the UK, and is also associated with financial crime and scams. To help keep you informed, this article explains the basics of how crypto works, the risks involved, and the scams to watch out for.

What is crypto?

Cryptocurrency is a form of digital money created from a code. An encrypted string of data is coded to signify one unit of currency. You’ve probably heard of Bitcoin, but that’s one example from a long list of different cryptocurrencies and cryptoassets. ‘Cryptoasset’ is the broader term that includes other products, as well as cryptocurrency. We’ll use “crypto” as shorthand for cryptoassets, including cryptocurrency, in this article.

The thing is, cryptocurrency isn’t underpinned by any other currency or asset, so it’s not formally considered to be currency or money. Cryptocurrency is not backed by a central bank or other authority and is not monitored by the government. Instead, the cryptocurrency economy is monitored by the community using cryptocurrency online.

Because it’s not regulated in the same way as other currencies or assets, organised criminals will often use crypto to launder the proceeds of crime, or to fund crimes and terrorist activity. There is also evidence of cryptoassets being used by terrorist organisations to make anonymous payments.

The risks of investing in crypto

Image of a laptop displaying text which says "Invest now. Double your profit with crypto" alongside a Bitcoin icon.
Online adverts might promise high-returns, but there's also a very high risk.

The price of any cryptoasset is highly volatile, meaning the value of a crypto investment could shoot right up but then drop down again in a short period of time. It’s also highly speculative as it’s based on investor sentiment rather than a tangible asset. If investors stop seeing the value in a cryptocurrency, there’s no actual asset to fall back on.

Whilst there is the potential to make a gain, there’s also a very high risk that investors could lose 100% of their investment. There is also no guarantee that cryptocurrency can be easily converted back into cash. It all depends on the demand and supply in the market, so investors might not be able to get their money back when they need it.

“Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.”

Sheldon Mills, executive director of consumers and competition at the FCA.

And it’s not just crypto as an investment you should be cautious about, it’s the platform or provider you use. 2022 was nicknamed "The Crypto Winter" as several big crypto platforms filed for bankruptcy, resulting in trillions of dollars lost in the value of cryptocurrencies around the world. There were also significant hacks on crypto providers in 2022, which makes sense when you consider that crypto may be the currency of choice for criminals. 

You can learn more about this in the BBC Sounds podcast - The cult of crypto: how $2 trillion went up in flames.

Crypto scams

Image of a smartphone screen with a message saying "Hey, do you have a crypto wallet yet? I can help you set one up so you can make money really easily."
An example of a message a scammer could send

The crypto marketplace is a target for fraud and scams so you should be cautious before investing.

Crypto scams may begin with criminals pretending to be from a crypto-investment provider.  Scammers are adept at creating professional-looking websites, adverts, and social media promoting crypto investments. They’ll often promise high or guaranteed returns and use fake reviews to lure people in. But these apparent providers or cryptoassets may not even exist, or the scammer might be impersonating a genuine provider.

These days, many crypto scams often start through messages on social media or online dating apps. In these cases, the scammer pretends to make contact under the guise of starting a friendship or romance. They may have a fake profile to fool the user into thinking they’re someone they’re not. After gaining a user’s trust, the scammer claims to have made money using a crypto scheme and offer to invest on their behalf.

More investment scams

What can happen if you’re scammed?

There are several different ways that crypto scams can play out. The victim may send money to the scammer thinking it will be invested, but the scammer pockets the money themselves instead or puts it in their crypto wallet.

Some of the messages and online adverts promoting crypto could turn out to be ‘phishing messages’. Clicking on the links in phishing messages can release malware and allow criminals to access the victims’ details or computer. Or they may lead to websites designed to steal the victim’s personal or financial information which is then used to commit fraud.

More on phishing scams

What is phishing?

Phishing is a common type of internet fraud. Phishing emails are designed to appear as though they are from a legitimate source, but intend to steal personal information that can be used to access your account.

Do not respond to any email that asks for any information in relation to your internet banking log in details. If you have received a suspicious email, do not respond and call us if you need any further information.

Protect yourself from crypto scams

  • Be wary of unexpected emails, texts, phone calls, or social media messages promoting crypto. Don’t click on any links and visit the websites directly instead.
  • All investments carry risk, so be suspicious of anything offering exceptionally high or guaranteed returns.
  • Slogans promising “get rich quick” schemes or that you’ll “double your money” are commonly used by scammers. Steer clear.
  • Scammers often try to rush or pressure people into investing without thinking it through. Always take the time to do your own research before parting with your money.
  • No legitimate financial company will pressure you into investing. Turn down “limited time” investment offers that ask you to make a decision immediately.

Still planning on investing in crypto?

Even genuine opportunities carry risk, and crypto is even riskier in that there’s no tangible asset to fall back on. You should only invest money in crypto if you’re prepared to lose 100% of it. Also, while cryptocurrencies themselves are not regulated; crypto exchanges are. Therefore, you should check that the exchange that you’re dealing with is regulated by the FCA, and also isn’t a scammer impersonating one.

Always make sure you fully understand the investment before going ahead and consider getting financial advice.

Before investing, you should:

  • Check the Financial Services Register to find out whether a firm is registered with the Financial Conduct Authority (FCA) and avoid those that aren’t. Contact the firm using the details shown on the Financial Register in case the ones given to you on a website or message are fake.
  • Check the list of unregistered cryptoasset businesses the Financial Services Register. It shows UK businesses that appear to be carrying on cryptoasset activity without being registered with the FCA. These are advisable to avoid. 
  • Search the FCA Warning List of unauthorised firms. These detail the unauthorised firms and individuals that the FCA are aware of, who aren't allowed to operate in the UK.