Gary Gensler’s Three Rules to Avoid Crypto Scams


May 16, 2023


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2022 showed us that many bad actors are looking to scam cryptocurrencies out of people's wallets. While these scams are becoming more sophisticated, there are many ways to detect them and avoid becoming a victim. According to Gary Gensler, chairman of the SEC, there are three ways to spot scams.

On January 27, Gensler and SEC Commissioner Caroline Crenshaw participated in a Twitter Space for the U.S. Army. In this Space, they discussed some risks related to crypto investing. Finally, they talked about scams and how to spot them.

Gensler's central point was, "If something seems too good to be true, sometimes it really is." For the SEC chairman, these too-good-to-be-true projects have many red flags that people should not ignore.

According to Gensler, there are three clear signs that we are facing a scam.

1. The first red flag is that the project does not have clear documentation on how it works, its objectives, or how it will accomplish them.

2. The second red flag is that the project cannot prove that it complies with legislation.

3. The third and final red flag is that the project cannot explain what it is and does in Layman's terms.

In addition, Gensler said that one must be very careful with projects that offer high returns. Most of these projects look to rush the investor in under the high-yield premise. If the investor does not do their due diligence, they will enter because of FOMO (Fear of Missing Out) and not because the project is worth it.

Finally, Gensler reiterated that he believes most cryptocurrencies are unregistered securities and that more than 15,000 current tokens will eventually fail.

After the chairman's talk, we can recap that to avoid scams, we only need one thing: common sense. DYOR — do your own research, and you'll avoid being scammed.