Bitcoin (BTC 1.05%) may be on the cusp of truly going mainstream, but the crypto market continues to see no shortage of new scams. And it doesn't matter how big or sophisticated of an investor you might be. Even billionaires and longtime savvy investors can get duped by crypto scammers.
The good news is that you can take several basic steps to safeguard your crypto investments and steer clear of most crypto scams. Let's take a closer look.
Use ETFs whenever possible
Arguably, the safest way to invest in crypto is by investing only in exchange-traded funds (ETFs) for specific cryptocurrencies. You can buy and trade these ETFs the same way you would a tech stock, so there's no learning curve involved. You don't have to open any new accounts. Plus, you can sleep easy at night, knowing that every ETF has a seal of approval from the Securities and Exchange Commission (SEC). That helps to explain why the new spot Bitcoin ETFs have been so popular.
As new ETFs roll out for other cryptocurrencies beyond Bitcoin, you'll be able to slowly diversify your crypto holdings. For example, the SEC recently approved new ETFs for Ethereum (ETH 2.71%), so these are coming soon. And some have suggested that Solana (SOL +0.26%) might be the crypto next in line after Ethereum to get its own spot ETF.
Choose a trusted crypto-trading platform
For many investors, though, an ETF-only strategy is probably too limiting. You'll need to find a safe place to buy and sell your crypto, and cryptocurrency exchanges such as Coinbase Global (COIN +0.19%) are a popular choice.
Since Coinbase is regulated by the SEC, it has some strong safeguards built in. For example, Coinbase won't list a crypto for trading unless it meets certain key criteria. And since Coinbase is a publicly traded corporation, it needs to run a squeaky clean ship and provide audited financial statements. Coinbase also has best-in-class security protecting its crypto vaults, so you don't have to worry about a cyber heist.
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But Coinbase is hardly the only option when it comes to crypto-trading platforms. There are literally dozens of possible options. The Motley Fool Ascent has analyzed many of these and determined which ones are the best for buying Bitcoin, as well as which ones are the best for buying altcoins (i.e., all cryptos other than Bitcoin).
It's important to do your own due diligence here. Remember -- everyone thought FTX was a trustworthy cryptocurrency exchange until it collapsed in November 2022. In hindsight, we now know that former FTX CEO Sam Bankman-Fried was using customer funds for proprietary trading operations at the same time he was lining up celebrity endorsements.
Set clear investment rules
Finally, it's important to set a few up-front rules of which cryptos you will invest in, as well as which cryptos you will not. No surprises here, but the cryptos most likely to be the target of a scammer are those with tiny market caps and limited trading liquidity.
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As a general rule of thumb, you should avoid cryptos that are not offered for trading on the top crypto exchanges. And you should avoid cryptos that are under a certain market-cap threshold. Right now, a sensible target would be a $1 billion market value. That would give you access to the top 100 cryptocurrencies as ranked by market cap. But if you are particularly risk-averse, you might consider bumping that number up to $5 billion, which will limit you to just the top 25 cryptos.
Perhaps the best advice here is to avoid any crypto that appeals to get-rich-quick investors. Unfortunately, that means meme coins should be off your investment radar. While popular meme coins can soar in value for a brief period of time, their long-term appeal is very limited. The situation is even worse for meme coins with tiny market caps, which are often subject to extreme market manipulation such as pump-and-dump schemes.
Be a better educated investor
At the end of the day, the better educated you are about crypto, the better off you will be when it comes to avoiding classic crypto scams. For example, if you are planning to hold crypto tokens in a blockchain wallet, you must familiarize yourself with the basics of blockchain wallets. That way, you won't be tricked into giving away your cryptographic keys to an unscrupulous scammer who will use this information to raid your account.
Fortunately, crypto is going increasingly mainstream, and the crypto market is starting to feel less and less like the Wild West with every passing year. As the regulatory environment tightens up, and as big Wall Street investors get involved with crypto, the risk of scams will likely decline over time. But until that happens, it's certainly worth your time to explore the safest ways to invest in crypto right now.
