By Nathalie Voit

Investments related to cryptocurrencies and digital assets are “by far” the top threat to investors in 2022, the North American Securities Administrators Association (NASAA) said in its annual survey of the largest threats facing investors.

“Stories of ‘crypto millionaires’ attracted some investors to try their hand at investing in cryptocurrencies or crypto-related investments this year, and with them, many stories of those who bet big and lost big began appearing, and they will continue to appear in 2022,” said Enforcement Section Committee Co-Chair and Alabama Securities Commission Director, Joseph P. Borg.

According to the investment protection firm, most crypto fraud threats involve private offerings. Private securities can bypass federal registration requirements and other important investor protection regulations, making them a prime target for con artists.

“Unregistered private offerings generally are high-risk investments and don’t have the same investor protection requirements as those sold through public markets,” Borg said.

The voluntary association of securities regulators said if it sounds too good to be true, it probably is.

“Before you jump into the crypto craze, be mindful that cryptocurrencies and related financial products may be nothing more than public facing fronts for Ponzi schemes and other frauds,” said Enforcement Section Committee Vice-Chair and Texas State Securities Board Enforcement Division Director, Joseph Rotunda.

“Investments in cryptocurrency trading programs, interests in crypto mining pools, crypto depository accounts, and securitized tokens should be seen for what they are: extremely risky speculation with a high risk of loss,” he added.

Apart from warning investors to exercise caution before buying popular and volatile unregulated investments, the organization also listed “fraud offerings related to promissory notes, money scams offered through social media and internet investment offers, and financial schemes connected to Self-Directed Individual Retirement Accounts,” as the top three threats to investors following digital asset fraud.

“Education and information are an investor’s best defense against investment fraud,” said Melanie Senter Lubin, NASAA President and Maryland Securities Commissioner.

In 2021, cybercriminals took home an all-time high of $14 billion in cryptocurrency, nearly 80% more than they stole in 2020, data from blockchain analytics platform Chainalysis found.

Chainalysis said scamming and theft were the top two contributors to crypto-related crime.

“[Decentralized finance] is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike,” the company said in its annual Crypto Crime report.

“But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”