Introduction Link to heading

The rise of cryptocurrency has brought immense opportunity—and unfortunately, significant risk. While the promise of decentralized finance (DeFi), quick returns, and innovation has attracted millions, South African investors are not immune to the dark side of the crypto boom.

Local and global scammers have exploited the enthusiasm for digital assets with devastating consequences. This guide explores six of the most common crypto scams, how they operate, and most importantly, how to avoid becoming a victim.

1. Rug Pulls – When Developers Disappear with Investor Funds Link to heading

A rug pull occurs when developers launch a token or project, attract investors, and then withdraw all liquidity and vanish. These scams are especially common on decentralized platforms like PancakeSwap and Uniswap, where listing a token is unregulated and simple.

In 2021, the Africrypt scandal made headlines when two brothers from Johannesburg allegedly disappeared with over R50 billion in Bitcoin. Although they claimed their exchange was hacked, investigations later suggested a classic rug pull.

Red Flags: Anonymous teams, no code audits, excessive token holdings by founders, no liquidity locks.

How to protect yourself:

  • Verify if the project has had an independent security audit.
  • Research the development team’s credibility.
  • Avoid tokens with no liquidity lock or skewed token distribution.

2. Pump and Dump – Riding the Hype to a Crash Link to heading

In a pump and dump scheme, the price of a coin is artificially inflated via hype—often within WhatsApp, Telegram, or Facebook crypto groups. Once the price spikes, insiders sell off their holdings, causing a price crash and leaving others with worthless tokens.

Local Telegram groups have promoted obscure altcoins promising 10x returns “in days.” These schemes, while illegal under the Financial Markets Act, often go unpunished due to a lack of reporting.

Red Flags: Guaranteed profits, aggressive promotion, sudden trading spikes.

How to protect yourself:

  • Avoid making decisions based on social media hype.
  • Research the token’s trading history and liquidity.
  • Monitor wallet activity for suspicious patterns.

3. Ponzi Schemes – Paying Old Investors with New Money Link to heading

Ponzi schemes rely on money from new investors to pay older ones. There is no legitimate business activity—just an endless cycle of recruitment until it inevitably collapses.

One major example is Mirror Trading International (MTI), which claimed to use Bitcoin trading bots to generate daily profits. In 2020, the FSCA declared it a Ponzi scheme after it defrauded over 280,000 investors globally, many of whom were South Africans.

Red Flags: Consistent high returns, referral bonuses, vague or unverifiable strategies.

How to protect yourself:

  • Ask how returns are generated.
  • Consult FSCA warnings.
  • Be wary of platforms that rely heavily on user recruitment.

4. Fake ICOs and Presales – Selling Air Link to heading

Fake ICOs and presales involve scammers marketing tokens for non-existent or vaporware projects. Once funds are raised, they vanish—often without delivering any product.

While no major local fake ICO has been prosecuted, South Africans have been targeted by international scams like BitConnect, which used flashy presentations and YouTube influencers to build trust.

Red Flags: No whitepaper, fake team bios, no actual product, unrealistic roadmap.

How to protect yourself:

  • Confirm listings on sites like CoinMarketCap.
  • Validate team credentials and GitHub contributions.
  • Use trusted ICO tracking platforms.

5. Exit Scams – Disappearing Acts After Going Legit Link to heading

Exit scams are particularly deceptive. A project appears legitimate, often operates for several months, and then shuts down after gaining user trust and raising enough funds.

In South Africa, several crypto mining operations were accused of collecting capital from rural communities before disappearing. Victims rarely report such scams due to fear or limited access to legal support.

Red Flags: Website shutdowns, withdrawal issues, silence from project leads.

How to protect yourself:

  • Use regulated platforms (like Luno).
  • Test withdrawals with small amounts.
  • Check the FSCA or SARB watchlists regularly.

6. Smart Contract Backdoors – Hidden Code with Malicious Intent Link to heading

Smart contracts power DeFi projects but can be manipulated if they contain hidden backdoors. These vulnerabilities allow developers to mint unlimited tokens, freeze assets, or drain liquidity.

While South Africa has not yet seen a large-scale smart contract exploit, the 2021 PolyNetwork hack—which involved R9 billion worth of stolen crypto—shows how real this risk is globally.

Red Flags: Unverified contracts, obfuscated or unreadable code, erratic token behavior.

How to protect yourself:

  • Only interact with audited contracts.
  • Inspect code on Etherscan or GitHub.
  • Consult developers or legal professionals if uncertain.

Final Thoughts: Stay Informed, Stay Safe Link to heading

South Africans are entering the crypto space in growing numbers, but education must match enthusiasm. Whether you’re buying Bitcoin or investing in the next altcoin, due diligence is essential.

Check FSCA alerts, verify developer credibility, understand what you’re investing in—and most importantly, never invest more than you can afford to lose.

The golden rule: If it sounds too good to be true, it probably is.

Peet Roodt
Legal & Compliance Adviser
📧 [email protected]
🌐 www.peetroodt.co.za