Protecting Your SMSF from Cryptocurrency Scams

As cryptocurrency continues to gain popularity, it is increasingly attracting the attention of malicious actors who prey on vulnerable individuals in the market. At Tax On Chain, our expert crypto accountants have unfortunately seen some clients fall victim to scams involving illegitimate cryptocurrency investments. To help you safeguard your Self-Managed Super Fund (SMSF) and make informed decisions, our specialist crypto SMSF accountants have compiled a list of common red flags to watch out for when considering cryptocurrency investments.

Common Red Flags in Cryptocurrency Investments

Enticing Investors to Access Superannuation

The pressure to access cryptocurrency investments through superannuation funds has become a growing concern, particularly as scammers target vulnerable investors, often older individuals, who have little to no understanding of cryptocurrency and its technology. These fraudulent schemes exploit the desire for high returns, luring individuals into diverting their superannuation into risky and unfamiliar investments. The result can be devastating, especially for those investors who are nearing retirement age, with victims facing significant financial losses and compromised retirement savings, often with limited understanding of how it happened or how to recover.

A Simple Google Search Indicates a Scam

If a simple Google search reveals numerous articles or pages labelling an investment as a scam, it’s a strong indicator that the investment is likely fraudulent. Scammers often try to dismiss these red flags by claiming they’ve consulted with their “legal team” or have taken other actions to resolve all concerns highlighted by the public. However, this is typically a tactic to lull potential victims into a false sense of security. Taking the time to research and trust the warning signs can save you from falling victim to these unscrupulous actors. If an investment opportunity is widely flagged as suspicious, there is a high chance it is fraudulent, no matter the reassurances given.

Anonymous or Unverifiable Team

Be wary of crypto investments where the team behind the project is anonymous or cannot be easily verified. Legitimate projects should have a credible and transparent team with a verifiable track record in the industry.

Unverified Partnerships and Endorsements

Be wary of platforms that claim “partnerships” or endorsements that cannot be independently verified. False claims of high-profile partnerships are often used to create an illusion of credibility.

Frequent Rebranding

Be cautious of companies that frequently rebrand themselves or operate under new company names, often for legal reasons. Constantly changing names or branding is a common tactic our crypto accountants have seen to escape a tarnished reputation or past failures. Legitimate companies typically maintain consistent branding to build trust and recognition with their investors.

Fake Blockchain Companies

Be cautious of companies that falsely claim to be blockchain-related businesses when in reality they are using the term as a facade to deceive investors who have limited knowledge of blockchain and cryptocurrencies. They will often claim to guarantee high yields on their unlicenced investment product and use aggressive and predatory marketing tactics. These companies have no genuine connection to the crypto or blockchain industry, yet they often manage to mislead the public, which, unfortunately, tarnishes the reputation of the entire sector.

Unlicensed Platforms

For platforms that market themselves like an investment scheme, ensure that they have a proper financial services license. Unlicensed platforms lack oversight and regulatory protections, making them riskier and more susceptible to fraudulent activities.

Liquidity Restrictions

Be cautious of investments that require you to lock up your funds for unusually long periods or make it difficult to sell or withdraw your holdings. Legitimate investments should offer reasonable liquidity and flexibility, allowing you to access your funds without excessive restrictions. Watch out for investments that can only be sold on restrictive platforms, as this can trap your funds and limit your financial flexibility.

Unrealistically High Yields

If an investment promises extremely high yields that seem too good to be true, they probably are. Be sceptical of schemes that lure investors with the promise of quick and excessive returns, as these are often unsustainable, risky or simply non-existent.

Unsubstantiated or Obscured Yields

Ensure that any yields or returns are backed by legitimate revenue streams. Be wary of investments offering yields in the form of “points” or unrelated “tokens” as this is a common technique to obscure the true value of the return. Yields generated from unclear sources or “points” and “tokens” can make it difficult to assess the actual performance of the investment and indicate a lack of legitimate business operations.

Aggressive Marketing Tactics

Be cautious of investments that use high-pressure sales tactics, unsolicited messages, or exaggerated claims to attract investors. Legitimate investment opportunities should provide clear, transparent and verifiable information without resorting to aggressive marketing.

Complex and Opaque Structures

Avoid investments with overly complex or opaque structures that make it difficult to understand how the investment works or how returns are generated. Transparency is key to making informed investment decisions.

Protecting Your Investments

It is important to note that Tax On Chain is not a financial advisor and cannot offer financial advice , meaning we cannot tell you which specific investments to invest in or to avoid. However, if you are setting up a crypto SMSF you need to consider the risks associated with this certain asset class and be weary of potentially fraudulent investments. To remain compliant within your crypto SMSF, you must recognise these risks when formulating your investment strategy. By keeping these points in mind, you can better protect your crypto SMSF and make more informed decisions when considering cryptocurrency investments.

Contact Us

If you have any questions or need assistance with your SMSF and cryptocurrency investments, please don’t hesitate to reach our expert SMSF crypto accountants. We are committed to providing you with the best possible service and support, ensuring your wealth remains protected.