Bitcoin surged past $100,000 in early December as investors and boosters salivated. They likely envisioned a friendlier regulatory environment under President Donald Trump, who declared in an August post on the social platform X that the U.S. would be “the crypto capital of the planet.”
But before investors count their chickens or fork over their hard-earned dollars, they must do their homework on crypto’s history. A little digging reveals that a fall has followed every new record price in crypto. Bitcoin fell by over 10% following its latest benchmark, and the recent highs have triggered fears of another crash. So, how does one invest in this alternative asset safely and smartly?
Recent history holds cautionary tales of imploded exchanges and crypto project developers on the run. While the bitcoin protocol and network are secure, its value can fluctuate more rapidly than traditional investments, leading to rocketing gains and stomach-churning losses.
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Exchanges or companies built around it or other related cryptocurrencies are highly volatile by nature: They can fail, get promoted misleadingly, or turn out to be outright pyramid schemes.
It’s been just two years since the crypto market went into an extended downturn. Before the 2022 crash, crypto ads were on bus stops, playing during the Super Bowl, and featuring celebs like Paris Hilton, who stopped by Jimmy Fallon’s show to shower the crowd with her branded version of a digital token called an NFT. (Pro tip: Proceed with caution when celebrities and national ads get involved.)
But in late 2022, when the Fed raised interest rates to the highest level in 15 years, investors and investment firms got skittish. They increasingly treated bitcoin like other speculative assets, offloading it in favor of safer assets when times got tough. As they started selling their bitcoin and the price dropped, the falling tide revealed the shaky projects under the surface.
Large exchange FTX stepped in to try to save some firms with a series of risky loans, putting in motion its own downfall. FTX went bust, revealing massive and sloppy fraud behind its shiny facade of success. The demise of FTX sent a wave of fear throughout the entire market, ushering in an extended “crypto winter.”
Meanwhile, over $76 billion has been lost to crypto hacks, scams, fraud, and other disasters since 2021, according to the crypto skeptic project Web3IsGoingGreat. For those interested in an alternative to traditional investing, past failures offer plenty of lessons. Some were risky bets, while some were outright scams.
Human psychology and technical vulnerabilities have played into some of the biggest crypto crashes. When key exchanges fail, or formerly high-profile developers are caught trying to flee the country with their investors’ funds, also known as a “rug pull,” it can spark broader selloffs and send prices plunging.
The same goes for disclosures of market manipulation or hacking. Regulatory crackdowns or pessimistic statements by authorities can also cause a tumble, as they did in 2021 when the crypto critic Gary Gensler became SEC chair and prices fell.
The collapses have often hit vulnerable members of society who seek opportunities in nontraditional investments, like retirees, immigrants, young people, and the working class. The tragedy of these tales is the betrayal of what drew so many to crypto in the first place: the promise of a fairer, more democratic financial system.
Spokeo analyzed news coverage and collapses chronicled by Web3IsGoingGreat to compile this list of the largest cryptocurrency crashes, alongside tips from the Securities and Exchange Commission and others on how to stay aware of risks when investing in crypto. Collapses are ranked in reverse order by the greatest losses, liabilities, and funding shortfalls.
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#10. NovaTech and AWS Mining crypto pyramid schemes
-Total estimated losses: $1 billion
After AWS Mining PTY Ltd., the first pyramid scheme Cynthia and Eddy Petion were involved with, came apart in 2019, the pair exploited religious faith to scam Haitian immigrants, holding revival-style seminars in Creole. “Reverend CEO” Cynthia promised instant profits from investing in their NovaTech scheme while secretly siphoning $40 million into her family’s accounts. The fraudsters also used funds from NovaTech to investors from their first scheme to help sustain the conspiracy.
When their second pyramid scheme began unraveling in 2022, thousands of immigrant families lost their savings, with the SEC’s charges of defrauding some 200,000 investors providing only some consolation to those who believed in the Petions’ false gospel of wealth.
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#9. HyperVerse scam
-Total estimated losses: $1.3 billion
HyperVerse scammed retirees from June 2020 through the beginning of 2022 by inventing a fake metaverse project with a fictional executive team and impossible investment promises. Self-proclaimed “Australian crypto crown prince” Xue “Sam” Lee and Brenda Chunga, known as the Bitcoin Beautee, spread what the SEC later called a “fraudulent crypto asset pyramid scheme” through network marketing groups.
They targeted older adults who invested and subsequently lost their life savings to a virtual world that never existed, leaving some surviving on basic pensions and facing mental health crises.
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#8. BlockFi bankruptcy
-Total estimated losses: $1.3 billion in liabilities
BlockFi’s 2022 flameout came just months after it agreed to pay $100 million in fines to the SEC and other state regulators for pushing too-good-to-be-true yields and failing to register as an investment business from 2019 through 2021. The final blow came from a $400 million lifeline from FTX that dragged BlockFi into crypto’s biggest meltdown. At its height before declaring bankruptcy, BlockFi claimed to have managed $15 billion in assets.
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#7. Celsius collapse
-Total estimated losses: $1.7 billion shortfall
Celsius Network promised 18% yields and an “unbank yourself” revolution that drew 1.7 million customers, including teachers and retirees, who entrusted their life savings to the failed lending platform. CEO Alex Mashinsky, whose crimes spanned 2018 to 2022, kept hustling for deposits even as the company bled money on risky decentralized finance (or “DeFi”) bets and now faces fraud charges while victims fight for scraps in bankruptcy court.
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#6. Thodex exit scam
-Total estimated losses: $2 billion
After launching Turkey’s first bitcoin ATMs and bragging he was “smart enough to lead any institution on Earth,” Thodex CEO Faruk Fatih Özer vanished in April 2021. It turns out he fled to Albania with $2 billion from 400,000 Thodex customers who were mostly young Turkish investors lured by extravagant giveaways like Porsches and PlayStations.
Justice caught up with Özer and his two siblings in 2023. They were each charged with money laundering, fraud, and organized crime and slapped with an over 11,196-year prison sentence and an approximately $5 million judicial fine.
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#5. Three Arrows Capital collapse
-Total estimated losses: $3.3 billion
Three Arrows Capital founders’ gambles on bitcoin and luna imploded, taking down dozens of other firms that had trusted the Singapore-based hedge fund. The collapse sent shockwaves through the industry and helped trigger 2022’s crypto downturn.
Officials apprehended co-founder Su Zhu at a Singapore airport in September 2023. He served four months in prison for failing to cooperate in the company’s liquidation investigations and for contempt of court. While co-founder Kyle Davies faced the same charges and sentence, he has avoided jail time by evading officials.
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#4. Africrypt exit scam
-Total estimated losses: $3.6 billion
South African brothers Ameer and Raees Cajee, aged 16 and 19 when they formed the firm in 2019, pulled off a massive crypto heist, vanishing in 2021 with billions after claiming someone hacked their exchange. According to investigators, the wunderkinds suckered wealthy investors, including pro athletes, with promises of algorithmic trading magic, then laundered the loot through a complicated series of dark web “mixers” that redirected the funds without a trace.
Because the country doesn’t consider cryptocurrency financial products, the Finance Sector Conduct Authority of South Africa couldn’t formally investigate the Cajee brothers’ scheme. The brothers resurfaced in Switzerland in April 2023, arousing suspicion of Swiss officials, who opened an investigation over suspected money laundering.
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#3. Genesis bankruptcy
-Total estimated losses: $5.1 billion in liabilities
Genesis froze billions in customer funds after getting caught in the FTX collapse. The company was lending up to $6.5 billion to crypto trading firm Alameda Research, co-founded by Sam Bankman-Fried, with loans that were only 50% secured and using FTX’s token, whose value fell to zero, as collateral.
A cryptocurrency intermediary, Genesis marketed itself primarily to institutional investors. In January 2023, the company filed for bankruptcy and began settling with customers and creditors.
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#2. FTX collapse
-Total estimated losses: $8.7 billion
FTX founder Sam Bankman-Fried secretly siphoned billions in customer money to his trading firm Alameda Research while plastering his brand across stadiums and courting celebrities and other powerful figures. Behind his carefully crafted image as a disheveled genius devoted to “effective altruism,” he ran a massive fraud, buying luxury real estate and becoming Washington’s second-largest Democratic donor, according to OpenSecrets, before it all came crashing down in November 2022, earning him 25 years in prison.
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#1. Terra-LUNA’s collapse
-Total estimated losses: $40 billion
Terra-LUNA’s May 2022 collapse revealed the fatal flaw in stablecoins when Terra co-founder Do Kwon’s system of destroying and creating tokens to maintain a dollar peg failed. Terra, the third largest cryptocurrency following Bitcoin and Ethereum as of April 2023, was among the first major crypto collapses.
While more sophisticated investors escaped early, everyday investors trusted Kwon’s promises until their money evaporated. Kwon fled with fake Costa Rican papers but was caught in Montenegro and extradited to the U.S. to face nine federal fraud charges.
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How to protect yourself against a major crypto loss
The SEC advises due diligence on all crypto projects. Verify founder identities, scrutinize business models, and be wary of unsustainable returns. Minimize exposure to exchange meltdowns by storing tokens in a hardware wallet and only investing what you can afford to lose entirely.
Consider evaluating whether an exchange maintains proof of reserves, where an auditor evaluates whether it can cover customer funds in the event of a loss. If promised returns look too good to be true, proceed with caution.
Data reporting by Dom DiFurio. Story editing by Alizah Salario. Additional editing by Elisa Huang. Copy editing by Kristen Wegrzyn. Photo selection by Ania Antecka.
