Xavier Becerra, Attorney General (AG) for the State of California, released a warning for investors and consumers on Friday, highlighting the rise in digital asset scams.
The warning provides guidance and caution, given the substantial number and variety of scams that have plagued the cryptocurrency market.
The apparent impetus for the announcement may be linked to the most recent scam perpetrated by hackers on Twitter. Several high-profile accounts were breached, promising double returns on whatever was sent.
However, the scam was just another in a long line of hoaxes. Per the announcement from the AG:
Fraudsters often rely on the excitement and mystery of innovation to persuade consumers and investors to offer up their cash in hopes of earning far more in return. Their schemes take many forms, but these swindlers all have the same goal: to separate people from their money.
Considering the Scams of the Past
Becerra outlines a host of ways that scammers have used cryptocurrencies in the past. These include fraudulent coin offerings (now-defunct ICOs), fake exchanges and wallets, and Ponzi or pyramid schemes, amongst others.
As the recent hacks have shown, cryptocurrency scams are on the rise.
— Xavier Becerra (@AGBecerra) August 7, 2020
The warning also includes specific claims to be wary of for investors and consumers. In particular, claims of free money or large rewards should be looked at with skepticism. This even includes otherwise reputable sources (like the hacked Twitter accounts, for example).
The warning concludes with a statement regarding the relative newness of the cryptocurrency industry. With little track record and low levels of regulatory control, the industry remains ripe for profit-obsessed tricksters.
Will Regulation Precede Adoption?
The announcement reflects two opposing forces currently in the cryptocurrency market. On one hand, the fact that a state-level AG gives attention to digital assets suggests a growing level of adoption.
And on the other, any substantial adoption will likely attract increased levels of regulatory scrutiny. Without proper regulations in place, first-time investors may be frightened off from legitimate cryptocurrency investment via warnings of this nature.