Legal risks involved in cryptocurrency for the investors

January 19, 2022

As cryptocurrency gains more and more popularity, transactions have also seen a dramatic rise. Unfortunately, with this increase in popularity has come an increase in crime and scams – scammers are getting craftier, wiser, and more experienced. Check The News Spy for more details about cryptocurrency trading. A virtual currency is a new form, a digital representation of funds held on accounts denominated in Bitcoin or other associated currencies. Unlike the current financial system, the system does not necessarily involve banks or governments.

Scam artists often target investors who may be new to cryptocurrency or are looking for ways to make money trading it themselves. Here are some of the most common ways you could be scammed as a cryptocurrency investor.

Pump and Dump Schemes

First of all, if you’re going to invest in cryptocurrency, never invest in a coin just because someone said so. Instead, understand what the coin does and why it exists. Look at the website, read the whitepaper if you can find one, and even look up some analyzing reports about it on YouTube.

The pump and dump schemes are a form of market manipulation that can be highly profitable for those who know how to do it. An event in which a person or group of people inform others about an investment that will rise significantly, then when the coin rises, they sell off all their coins for a considerable profit. It then leaves other investors confused about why the coin suddenly dropped. The price may drop even further if more coins are dumped onto the market by other investors who bought into the hype and were left holding worthless coins.

Status of decentralization of cryptocurrency

As a new form of currency, cryptocurrency is still heavily centralized. While the concept itself is decentralized, the highly centralized cryptocurrency market creates opportunities for lies and scams to thrive, especially when many people look for quick and easy ways to make money from their investments.

Scammers love to take advantage of this fact by creating investment opportunity websites that take your money without giving any returns at all. They often use these opportunities to charge astronomical fees on top of their cut from the profits obtained from your investment. Some scams involve convincing you that you’re investing in a coin that’s going up in value exponentially.

Licensing and registration of business

To conduct business in the cryptocurrency market, you need to be registered and licensed. For this reason, people often take advantage of the fact that many newcomers to cryptocurrency genuinely have no idea of the license required by them. One way in which this is done is by pretending to be a licensed business but stating they’re not going to pay taxes or charge a fee for their services. They may even have false registration documents or licenses that look legitimate.

Also, they don’t pay taxes on any profits they get because they’re not a licensed company but just a legal trust – so their profits are never taxed. The problem with this is that if you invest in a scam and it’s exposed, the government can do nothing to help you.

Tax violations

Cryptocurrency is not controlled by the government because it’s decentralized; however, the government still wants their taxes on any potential profits you make through investment. The problem is that there are hundreds of new startups each year, so it’s tough for the authorities to keep track of every business’ tax situation. Every once in a while, the SEC (Securities and Exchange Commission) and other federal bodies will go after some companies.

It is not something that often happens because cryptocurrency is still relatively new; however, there are already several high-profile cases regarding tax evasion based on investments.

Money laundering

Cryptocurrency has always been a popular way for criminals to launder money. The anonymity of Bitcoin and other cryptocurrencies makes it very easy to hide your identity and avoid paying taxes. Such attributes provide a perfect opportunity for criminals to make their illicit profits without fear of being caught.

One form of this that’s becoming more common is the cryptocurrency-based Ponzi scheme, where people pay up in hopes of receiving returns in another currency such as Bitcoin. In this case, the scammers eventually disappear and leave investors with nothing but empty pockets while they keep all their profits as they’re technically not involved in any crime.


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