A self-titled “cryptocurrency consultant” was sentenced for embezzling millions of dollars from clients in a cryptocurrency scam earlier this year in California.
The scam — in which the consultant admitted to embezzling clients’ funds the government says are worth more than $20 million today — highlights how bad actors can take advantage of newcomers in an emerging and murky market.
But in an industry with no standards for offering advice or education to investors, where should newcomers turn to for advice? Private cryptocurrency consultants are not required to hold any sort of traditional accreditation like a certified financial planner (CFP). With personal finance experts and even government officials continually pointing out the security risks and potential for fraud in cryptocurrency, conventional financial advice offers a sturdy fallback.
“I have never recommended or advised anyone to seek out an independent cryptocurrency consultant,” says Daniel Johnson, a CFP at ReFocus Financial Planning. “This seems as if it could be a disaster waiting to happen.”
When to Pay for Investment Advice
Before you decide to put money anywhere, make sure you educate yourself as much as possible first, and remember that you’re your best financial advisor.
“No one will ever care about your money as much as you, so some self-education is always a great first step that will serve you well for the rest of your life,” says Jeremy Schneider, the personal finance expert behind Personal Finance Club.
If you’re looking for expert advice, you should probably stick with a conventional financial advisor who has familiarity with cryptocurrency. When looking for a financial advisor, make sure they have a certified financial planning (CFP) certification.
CFPs must act as a fiduciary with integrity and competence, says Theresa Morrison, a CFP at the Beckett Collective. “In English, this translates to acting in the client’s best interest, with honesty and candor, and with subject-matter knowledge and the skill to apply that knowledge,” says Morrison.
Because of this fiduciary responsibility, any CFP who can provide advice on digital assets “must have deep knowledge and skill” on the topic, according to Morrison. “A consultant is not required to adhere to any of this,” says Morrison. “They may or may not be experts. They may or may not act with integrity.”
One of the biggest benefits of using a CFP for advice is their ability to look at your entire financial standing, and guide you accordingly. “Right now, all advisors have to decide if investing in crypto is in the client’s best interest,” says Dan Herron, a CFP with Elemental Wealth Advisors. “If we determine that it is, you’re going to see a lot of small allocations.”
Morrison acknowledges it can make sense to look for specialists, “when the situation requires more expertise or a different experience than I have.” Most cases for this have been beyond what average investors would need to know.
If she needed to find such a specialist, Morrison would look for someone “who has a solid reputation within the specific expertise in traditional markets and has transitioned that expertise to digital assets.”
But for most clients looking to dip their toes into crypto, it’s “far more about education,” says Morrison — which CFPs like her are qualified to provide.
The Risks of Cryptocurrency Investing
Private cryptocurrency consultants can be anyone from someone on the internet with a passing knowledge of cryptocurrency to a professional in the field with years of experience in blockchain and digital assets.
Without any sort of regulation or standardization on who can call themselves a cryptocurrency consultant, advisor, or expert, hiring someone who isn’t a CFP to give credible, expert advice is definitely a gamble. If you are in search of crypto guidance beyond what a CFP might be able to provide, or which your own research has shown you, a healthy vetting of someone’s background is a good place to start.
One of the biggest concerns for crypto investors is the risk of hacking and fraud, and not without cause. Cryptocurrency crimes have been increasing, according to data from the Federal Trade Commission, and resulted in a median loss of $1,900 per report between October 2020 and March 2021.
Nicole DeCicco, the owner and founder of CryptoConsultz in Portland, Oregon, has personal experience with the risks after she lost Ethereum in a 2016 hack — she was an Ethereum miner. Her experience and early knowledge of cryptocurrency inspired her to start her own business. “As I was mining, I had plenty of friends asking me for help, which I gladly gave,” DeCicco says.
How to Detect (and Avoid) Crypto Scammers
There are definitely bad actors looking to exploit an emerging crypto marketplace and the investors who are drawn to it. DeCicco says she has clients come to her “all the time” who’ve been burned in the past. “I hear about all sorts of scams,” DeCicco says. “Money they’ve invested into education programs or investment advice and they’ve been scammed out of their money.”
DeCicco says she’s seen scams on social media, where individuals or companies request wire or crypto transfers to unknown wallets and claim outrageous returns.
“There’s plenty of risk in the industry and, not unlike any other emerging market, we’ll continue to encounter bad actors taking advantage of the opportunity through nefarious activities,” DeCicco says.
Some things to watch out for:
- Anonymous crypto experts who don’t want their true identity attached to their business
- Someone without verifiable experience in blockchain and crypto
- Someone requesting payment via wire transfer, gift card, or cryptocurrency
- People who guarantee they’ll make you money
If something seems too good to be true, assume it is. When in doubt, turn to a certified financial planner. And sometimes scammers aren’t the only danger you need to worry about when transacting in cryptocurrency.
Other Ways to Prevent Crypto Fraud
The Federal Trade Commission offers the following advice on how to avoid getting scammed:
- Never pay by wire transfer, gift card, or cryptocurrency. There’s almost no way to get that money back.
- Some scammers start with unsolicited offers from supposed “investment managers.” These scammers say they can help you grow your money if you give them the cryptocurrency you’ve bought. But once you log in to the “investment account” they opened, you’ll find that you can’t withdraw your money unless you pay fees.
- Some scammers send unsolicited job offers to help recruit cryptocurrency investors, sell cryptocurrency, mine cryptocurrency, or help with converting cash to bitcoin.
- Scammers guarantee that you’ll make money. If they promise you’ll make a profit, that’s a scam. Even if there’s a celebrity endorsement or testimonials. (Those are easily faked.)
- Scammers promise big payouts with guaranteed returns. Nobody can guarantee a set return, say, double your money. Much less in a short time.
- Scammers promise free money. They’ll promise it in cash or cryptocurrency, but free money promises are always fake.
- Scammers make big claims without details or explanations. Smart business people want to understand how their investment works, and where their money is going. And good investment advisors want to share that information.
- Before you invest, check it out. Research online for the name of the company and the cryptocurrency name, plus words like “review,” “scam,” or “complaint.” See what others are saying. And read more about other common investment scams.
When deciding to pay anyone for money advice, remember to properly vet them, set up an exploratory meeting before paying any money, and do your own independent research. For most people, a CFP will be your best bet if you feel professional advice makes sense for you. For more informal consultants — with crypto or anything — it’s more a matter of buyer beware.
“Take caution, because the right answer to the wrong question will lead to the wrong path,” says Morrison.