Cryptocurrency is no longer just a curiosity. Despite warnings from financial experts and law enforcement agencies about volatility, scams, and lax regulatory oversight, digital currencies are now part of the financial mainstream.

Major investment firms and banks now offer Bitcoin funds; payment giants like PayPal and Mastercard offer ways to buy, spend, or store digital currencies. With Venmo, you can buy, sell, or transfer cryptocurrencies the same way you can split a lunch bill. And a growing number of businesses now accept crypto as payment.

A recent survey of cryptocurrency holders by the National Cryptocurrency Association found that most respondents (76 percent) said they trust crypto as much or more than traditional banks. But a February 2024 Pew Research Center survey found most Americans “aren’t confident in the safety and reliability of cryptocurrency.” In the Pew survey, 63 percent of respondents said they had “little to no confidence that current ways to invest in, trade, or use cryptocurrencies are reliable and safe.”

The crypto craze is powered by the potential for enormous riches. When the first exchange opened in 2010, a single Bitcoin was valued at about $0.03. Today, it’s worth about $122,000.

While this modern-day gold rush has made people (mostly insiders) incredibly rich, many others have lost money.

“Crypto isn’t really an investment,” said Corey Frayer, director of investor protection at the Consumer Federation of America, who compares buying crypto to betting on an NFL football game. There are no underlying investments or governments backing most crypto, Frayer warns.

Frayer, who previously worked as a senior advisor at the Securities and Exchange Commission (SEC), cautions that digital currencies are “created out of thin air,” and their value depends largely on the “public fervor about the technology itself.”

Unlike publicly traded companies, which must provide regular and verifiable financial disclosures, most crypto companies offer little transparency.

Crypto is also far more volatile than most stocks, bonds, and commodities. Daily price swings of two to four percent are typical. “Exchange hacks, regulatory crackdowns, and macroeconomic conditions” can trigger sudden crashes, according to Webopedia.

“Outside actors” with significant positions in a digital currency have already used “subterfuge techniques,” including fake news releases from major retailers and the SEC to influence crypto prices, said Amanda Fischer, COO of Better Markets, a nonprofit, nonpartisan organization that promotes the public interest in the financial markets.

Fischer, who previously served as chief of staff at the SEC, worries about the lack of market surveillance that’s required for other investments. And while it may seem less risky to buy exchange-traded crypto funds (ETFs) through a bank or brokerage firm, the underlying crypto assets remain unregulated, she warns.

Her advice: “Treat any cryptocurrency investment like you would any sort of budget for sports betting or gambling; only put up what you can afford to lose.”

Fisher and Frayer were guests on a recent episode of Checkbook’s Consumerpedia podcast.

Another concern about crypto is accessibility. It’s estimated that up to 20 percent of all mined coins are permanently inaccessible due to dormant wallets, forgotten passwords, or lost private keys. As the website CCN noted, ”Access to Bitcoin is binary; either the private key works or it doesn’t. If the private key is lost, the funds cannot be moved. There are no shortcuts, resets, or overrides.”

Hack Attacks

Anything digital can be hacked—including cryptocurrency stored in your digital wallet or with a third-party company. Since 2014, at least 10 major crypto exchange hacks that stole more than $100 million each have been documented, according to Crystal Intelligence.

Earlier this year, hackers believed to be in North Korea stole $1.4 billion in Ethereum assets from Bybit, a Dubai-based crypto exchange. Ethereum is the second-largest cryptocurrency after Bitcoin, and this was the largest single crypto theft in the industry’s history. Unlike bank accounts, Crypto exchange accounts are not insured.

“Part of what makes cryptocurrency such an attractive honeypot for hackers is not only the ease with which it can be stolen, but the ease with which it can be laundered once it is stolen,” Fischer said. 

The hackers use online services called “mixers” or “tumblers,” that quickly launder digital currency by erasing its internet history, she explained. By the time the exchange or law enforcement learns about the heist, the money is gone forever.

Making America the ‘Crypto Capital of the World’

President Donald Trump, who in 2021 told Fox News that Bitcoin “seems like a scam,” now promises to make the U.S. “the crypto capital of the world.”

In August, he signed an executive order that expanded investment options for employer-sponsored 401(k) retirement plans to include cryptocurrency, private equity, and real estate. The order directed the Department of Labor, the Treasury Department, and the Securities and Exchange Commission to revise their guidelines to allow these investment options.

Since employers are still fiduciaries, required to act in their employees’ best interests when selecting retirement plan options, it remains to be seen how many are willing to take the risk of offering the crypto option.

Financial advisor Tom Cock, a partner at Apella Wealth and co-host of the Talking Real Money podcast, urges clients and listeners not to consider crypto as an investment.

“Adding cryptocurrency to your 401(k) puts your hard-earned money at the risk of high volatility, exposes it to a small and unproven asset, and could potentially lead to complete loss,” Cock told Checkbook. “If you are considering crypto, you might also look at Beanie Babies or tulip bulbs.”

The IRS treats Bitcoin and other cryptocurrencies as property, not currency. Transactions involving bitcoin are subject to capital gains tax, like stocks and real estate. Crypto holdings and transactions must be reported on your income tax form each year.

Congress Gives a Boost to ‘Stablecoins’

Stablecoins are a type of cryptocurrency designed to minimize volatility by pegging their value to a more stable asset, typically the U.S. dollar. You can already use stablecoins to buy tickets and concessions at AMC Theatres and Regal Cinemas, or to purchase computer equipment from Newegg. Shopify now accepts crypto payments.

“The major risk to holders of stablecoins is that the issuer may not be willing or able to fulfill redemption requests for their tokens at face value,” according to commentary posted on the Brookings Institution website. The authors noted that in May 2022, a selloff of the TerraUSD stablecoin “caused it to plummet in price, eliminating over $45 billion in value within a week.”

Stablecoins got a boost in July when President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) into law, the first cryptocurrency legislation ever passed by Congress. It establishes federal rules and guidelines for companies offering stablecoins, including the requirement that they maintain 100 percent reserve backing with “liquid assets,” such as U.S. dollars or short-term Treasuries.

Critics of the GENIUS Act, including the nonprofit vericans for Financial Reform, claim it will dismantle federal safeguards, create “windfalls for crypto tycoons,” and allow big tech companies to “further entrench their monopoly power.”

Mainstream financial players are racing to expand their crypto offerings. PayPal customers in the U.S. can now buy, sell, hold, and transfer select cryptocurrencies directly within their PayPal and Venmo accounts. PayPal also offers its own stablecoin, PayPal USD.

Mastercard recently announced that its cardholders can use stablecoins to make purchases at more than 150 million merchants worldwide. The company said it is “expanding” how more than 3.5 billion Mastercard cards in circulation can securely engage with crypto.”

Visa boasts on its website that it is working with “more than 70 of the leading crypto platforms” to issue crypto-linked cards that “make it simple and convenient to convert and spend crypto.”

Crypto ATMs Help Enrich Cybercriminals 

Crypto has become the currency of choice for criminals running romance scams, investment schemes, and government or bank impersonation cons. Digital currency is perfect for criminals: virtually anonymous, and transactions are instantaneous and irreversible.

Instead of telling their victims to buy gift cards at a local store (a still-common tactic), many fraudsters now direct them to nearby Bitcoin ATMs, where they can turn cash into crypto. There are about 30,000 Bitcoin ATMs in the U.S., according to the latest estimate from the website Coin ATM Radar, making them easy to find.

The Federal Trade Commission (FTC) reports that scams involving Bitcoin ATMS “have surged dramatically” in recent years. Tens of millions of dollars a year are now being converted to digital currency and sent to the fraudsters. The FTC calls these crypto ATMs “payment portals for scammers.” 

“Our familiarity with traditional ATMs is a big reason why scammers are getting their victims to send money via cryptocurrency kiosks,” said John Breyault, who manages the National Consumers League’s Fraud.org website. “Unfortunately for scam victims, once their cash goes into these devices, it’s almost instantaneously turned into untraceable and unrecoverable cryptocurrency.”

If you’ve fallen for a crypto scam, contact the FBI’s Internet Crime Complaint Center (IC3). A law enforcement agency may not be able to recover your money, but your complaint could help investigators track down the perpetrators.