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Crypto scams are surging across the United States, with the FBI’s latest cryptocurrency report revealing that Americans lost a staggering $5.6 billion in 2023—a worrying 45% increase from 2022. Alarmingly, older adults, particularly those over 65, were hit hardest, collectively losing more than $1.6 billion. California has borne the brunt of these losses, recording the highest state total at $1.1 billion.
What makes these losses even more striking is the volume of financial fraud complaints received by the FBI compared to total losses reported crypto-related crimes, which accounted for around 10% of complaints received but nearly 50% of total losses to financial schemes in 2023. This points to the current effectiveness of crypto scams in extracting large sums of money from victims. The decentralized nature of cryptocurrency may also play a part in this, with a lack of regulation and relative irreversibility of transactions once made, investors must protect themselves, but if they are unable to, they are highly vulnerable to scams.
The FBI is working to proactively warn victims about possible scams as bad actors continue to seek cryptocurrency through fraudulent investments, tech support, romance scams, and employment scams. Despite this effort, evolving financial technology is still unfamiliar to investors, and a lack of financial education has made them more susceptible to crypto scams.
What puts crypto investors at risk?
The crypto industry’s financial environment, with its volatility and potential for lucrative returns, may make investors more susceptible to risky investing decisions and scams. The fear of missing out has been reported to drive investment choices for 8/10 investors. The psychological pressure and rushed decision-making associated with FOMO can be exploited by scammers, and with a lack of verified educational resources for investors, FOMO will continue to have a distinct impact on investor vulnerability.
Research from InvestiFi has also found that 35% of investors rely on internet searches for financial knowledge to help manage their investments, while 25% don’t use any sources. Forty percent of 18-25-year-olds use financial influencers for their financial knowledge, and 50% of those 55 and older do not have a source for their financial knowledge, leaving them susceptible to poor investment decisions.
This reliance on informal sources creates a multitude of investor problems. Fraudulent accounts created by scammers can be created just as easily as legitimate ones, going undetected due to the lack of verification required. It can also lead to investor overconfidence, the vast amount of advice online can present investors with the illusion of a comprehensive understanding, especially if new to the market, regardless of the relevance and validity of the advice. Overconfidence tends to lead to an underestimation of risks and increases such investors’ chances of poor investment choices or susceptibility to scams.
One of the barriers to crypto investing for many account holders is this lack of financial literacy. The majority of investors do not have access to financial advisors due to a lack of initial funds. Financial institutions must adopt educational tools and resources; by providing educational content such as videos, articles, webinars, or personalized insights within the digital investing platform, financial institutions can differentiate their offering from fintechs.
This positions the institution as a trusted advisor that helps account holders build their financial knowledge and confidence.
What can financial institutions do to safeguard their account holders?
By offering in-house financial education resources, whether through blogs, dedicated advisors, or easy-to-understand publications, institutions will fill this gap, positioning themselves as trusted, go-to sources of information. If institutions implement these measures early, they could take advantage of a huge market of people wary of crypto investment and looking for accountability behind the advice.
Additionally, offering personalized advice through robo-advisors or in-house experts will support those seeking guidance from informal sources such as independent advisors or the internet. Accessible and reliable financial education can strengthen customer relationships, improve engagement, and lead to more account holders investing and managing their finances directly within an institution’s ecosystem.
In the United States, it’s common for financial institutions to require a minimum of $25,000 to access a financial advisor. However, the majority of people interested in investing don’t meet this threshold, creating a gap where many potential investors are left without guidance, potentially leading them to third-party apps or independent influencers with often no financial barrier to accessing information.
Financial institutions have an opportunity to bridge this gap by offering accessible, low-barrier investment options. With the addition of digital investing solutions, educational resources, and entry-level investment tools, individuals with smaller portfolios will be empowered to start investing in crypto confidently. Account holders also gain the financial education to make safe crypto investment decisions and avoid unnecessary losses.
