Investigating Crypto Fraud: Asset Tracing & Recovery

Cryptocurrency is a type of digital asset that can be traded electronically. Often referred to as crypto, it is a virtual currency that uses cryptographic techniques to ensure secure transactions. Crypto wallets come in various forms, including hardware, software, and even paper. Most crypto operate on a blockchain, a decentralised public ledger that records all wallet transactions in a transparent and immutable manner. The ledger is maintained by a distributed network of nodes that operate according to a consensus mechanism. 

Crypto fraud refers to scams or criminal activities in which fraudsters use digital assets such as Bitcoin or other cryptocurrencies to deceive victims, steal or misappropriate funds, or manipulate investments. What makes these schemes particularly effective is the nature of blockchain technology itself: transactions are pseudonymous, often irreversible, and operate outside traditional financial oversight, giving fraudsters both cover and speed. Tactics vary widely, from impersonating trusted institutions and creating convincing fake investment platforms to phishing attacks designed to harvest wallet credentials or seed phrases.

What are the main types of Crypto Fraud?

Crypto fraud is a growing concern due to the decentralised and often anonymous nature of digital assets, making them attractive targets for illicit activity.   

1. Investment Scams 

• Ponzi Schemes: Also known as Pyramid schemes, this is where scammers often promise high returns and recruit more members but use new investors’ fund to pay earlier ones. 

• Fake Initial Coing Offerings (ICOs): Scammers launch fraudulent crypto ventures or tokens to raise funds and then disappear with investor’s funds. 

• Pig Butchering (Romance Scam): Scammers gradually establish emotional trust through social media, text messages, or dating sites, then persuade victims to invest increasing amounts in fraudulent crypto platforms and ultimately blocking access and disappearing with the investors’ funds.  

2. Phishing Attacks and Social Engineering

• Fake Websites and Emails:  Fraudsters or scammers create convincing look-alike or mimicking sites to steal login credentials or other personal information, allowing them to access accounts and transfer funds into the fraudster’s wallet. 

• Social Engineering:  Scammers manipulate victims into revealing sensitive or information, such as passwords, seed phrases, or account information. 

3. Rug Pulls and Pump-and-Dump Scheme 

• Rug Pulls: A type of project exit scam in which the developers launch a new crypto currency project, attract more investors, and then disappear with the investor funds. 

• Pump-and-Dump: A scheme in which insiders inflating an asset’s value (“pumping”) through hype or misleading information, then scammers sell their holdings (“dumping”) at its peak, leaving other investors with losses when the asset’s value collapses. 

4. Money Mule Scams

• Victims often lure victims through fake job postings, investment schemes, social media interactions, or dating platforms often under the guise of legitimate employment, investment opportunities, or promises of easy income. 

• A money mule scams occur when criminals persuade victims, either knowingly or unknowingly, to transfer stolen or illicit crypto through their personal wallets in exchange for a commission, obscuring the true origin of the funds. 

5. Artificial Intelligence (AI) and Impersonation Scams  

• Fraudsters combine AI tools with fake identities, using AIgenerated voices, images, messages, or chatbots to convincingly imitate trusted individuals such as company representatives, family members, friends, or public figures. 
• These impersonations are used to push fake investment schemes, create lookalike crypto websites, and steal sensitive or financial information to deceive victims. 

6. Money Laundering 

• Criminals leverage specialised services to obscure transaction trails and move illicit funds through decentralized exchanges (DEXs). 
• Common crypto money laundering services include mixers/tumblers, chain hopping, peer-to-peer (P2P) platforms, cashing out via OTC brokers, online gambling sites, and other intermediary services.  

7. Hacking and Thefts 

• Exchange hacks / breaches:  Cybercriminals breach crypto exchanges to steal funds. 

• Wallet’s thefts:  Attackers gain access to private keys and drain wallets. 

Crypto Fraud Schemes At a Glance

Types of Crypto Fraud	Methods
Investment Scams	a) Ponzi Schemes b) Fake Initial Coing Offerings (ICOs) c) Pig Butchering (Romance Scam)
Phishing Attacks and Social Engineering	a) Fake Websites and Emails  b) Social Engineering
Rug Pulls and Pump-and-Dump Scheme	a) Rug Pulls Scheme b) Pump-and-Dump Scheme
Money Mule Scams	a) Fake Jobs and Investment Offers b) Unwitting or Witting Crypto Transfers
Artificial Intelligence (AI) and Impersonation Scams	a) AI-Generated Voices and Content b) Fake Identities and Lookalike Messages
Money Laundering	a) Decentralised Exchanges (DEXs) b) Crypto Mixers and Intermediary Services
Hacking & Thefts	a) Exchange hacks / breaches b) Wallet’s thefts

According to the Cryptoassets Consumer Research 2024, published on behalf of the Financial Conduct Authority (United Kingdom) in March 2025, the report provides survey into the types of scams and fraudulent activities encountered in the crypto space: 

Major Crypto Scams in the UK

In recent years, the UK has witnessed significant crypto fraud cases alongside successful asset recovery initiatives.

“Cryptoqueen who fled China for London mansion jailed over £5bn Bitcoin stash” 

According to BBC news, a Chinese businesswoman, Qian Zhimin, was sentenced at Southwark Crown Court to 11 years and eight months on 11 November 2025 after UK authorities discovered more than £5 billion in Bitcoin she had purchased using money stolen from over 100,000 investors in China. She had entered the UK in 2017 on a fake St. Kitts and Nevis passport as Yadi Zhang and lived in a highend Hampstead property while laundering proceeds from a large Ponzistyle scheme that falsely promised returns from tech ventures and cryptomining but ultimately siphoned off more than 40 billion yuan. A Metropolitan Police raid uncovered tens of thousands of Bitcoin, one of the biggest crypto seizures ever made in the UK. While victims hope to recover some losses through the proceeds of crime process, any remaining funds could eventually pass to the UK government.   

“SFO announces investigation into $28 million crypto scheme” 

The Serious Fraud Office (SFO) has opened its first major crypto investigation into the $28 million collapse of Basis Markets, a scheme that raised money through NonFungible Token (NFT) sales and a second token offering in 2021. Raids in London and West Yorkshire led to the arrest of two men on suspicion of fraud and moneylaundering, with officers seizing evidence linked to the operation. Basis Markets told investors in 2022 that US regulatory changes had halted the project, raising concerns about missing funds. The SFO, working with the Met and West Yorkshire Police, is now urging affected investors to come forward as the inquiry progresses. 

These cases highlight the growing sophistication of crypto fraud and the evolving legal strategies used to trace and recover stolen assets. 

How do Investigators trace Crypto Assets?  

Crypto asset tracing is a core component of asset recovery, using the transparency and immutability of blockchain data to track the flow of funds. Its effectiveness depends on a combination of digital forensics, blockchain analytical tools, OSINT and investigative techniques, and legal frameworks that enable authorities, investigators, analysts, or compliance teams to trace illicit funds, identify perpetrators, and support wider financial crime investigations.  

Some of these transactions often take place on: 

1. Centralized Exchanges (CEXs):  Act as intermediaries between buyers and sellers, managing transactions through a centralized entity. These platforms are operated by entities that facilitate trades, charge transaction fees, and ensure liquidity. 

• Regulatory Compliance: Users must adhere to Know Your Customer (KYC) verification, submitting identification documents, proof of address and even video verification. 

• Security and Custody: Funds are held by the exchange, reducing user control but offering insurance and fraud protection. 

• Liquidity and Speed: CEXs provide high liquidity, enabling faster transactions and efficient order matching. 

2. Decentralized Exchanges (DEXs):  DEXs eliminate intermediaries, allowing users to transact directly through peer-to-peer (P2P) mechanisms. These exchanges operate on smart contracts, ensuring autonomous and transparent trading. 

• User Control: Traders retain full custody of their funds, reducing reliance on third parties. 

• Trustless Transactions: Smart contracts execute trades without centralized oversight, enhancing security and privacy. 

• Decentralization and Transparency: No single authority governs transactions, fostering greater financial autonomy. 

3. Cryptocurrency Mixers: Also known as tumblers, are not exchanges. They are cryptographic services designed to obscure the transaction trail and hide the original source of funds.   

• Users rely on these tools to enhance privacy by mixing their coins with those of others, and they receive redistributed “cleaned” funds back afterward. 

• There are two types of mixers: Centralised and Decentralised. Centralised mixers are operated and controlled by thirdparty service providers, whereas decentralised mixers function through smartcontractbased systems without a central operator  

4. Cross-chain Bridges: They are not exchanges or trading platforms. They are infrastructure protocols that allows assets to move from one blockchain to another.  

• Analysts or Investigators link activity across blockchains by correlating bridge deposit events, execution logs, and associated metadata from both the source and destination chains. 

5. Decentralised Finance (DeFi): A blockchainbased ecosystem that delivers financial services without central intermediaries, relying on smart contracts to automate functions like trading, lending, borrowing, and investing. 

• DeFi supports peer-to-peer transactions, allowing anyone with a crypto wallet and use these protocols in a permissionless and transparent way. 

What tools and techniques are used to trace crypto assets?

With the effective use of cryptocurrency analysis tools and techniques, cryptocurrency transactions can be traced and tracked, and their patterns analysed to uncover fraudulent activity, identify hidden assets, and detect suspicious behaviour patterns.  Some of these tools and techniques include: 

1. Blockchain Explorers and Analytical Platforms 

• Blockchain explorers provide real-time visibility into transaction histories, wallet balances, timestamps, and NFT ownership. These tools also flag wallet addresses linked to illicit activities.  

• Advanced analytic platforms and solutions such as TRM Labs, QLUE, Chainalysis, Arkham, Breadcrumbs, Merkle Science, and Elliptic enable indepth investigations, identify and tagged highrisk wallets, and trace funds across blockchain networks to support asset recovery and fraud detection. 

2. Open-Source Intelligence (OSINT) 

• OSINT plays a crucial role in crypto investigations by helping identify wallet owners and mapping connections between individuals and entities. 

• Investigators leverage data sources such as social media, forums, domain records, Internet Protocol (IP) history, corporate filings, blockchain platforms, and other open sources to uncover critical details about crypto transactions and fraudulent schemes. 

3.  Digital Forensics 

• Digital forensics tools are essential for recovering crypto-related evidence from electronic devices. Paper notes taken during the seizure can also be crucial for locating additional evidence. 

• Key forensic solutions, such as Magnet Axiom and FTK Imager, can extract and analyse data from hard drives, mobile phones, cloud storage, emails, chat logs, deleted files, internet access records, login history, wallet addresses, and asset trails. 

Is it possible to recover stolen digital or crypto assets?

Recovering stolen crypto assets is possible but can be challenging as it involves a complex, costly, and time sensitive process that requires a strategic balance of legal and systematic approaches. Successful recovery depends on securing evidence, engaging the pertinent authorities, leveraging legal frameworks, and tracing and reclaiming stolen assets. While specific procedures vary by jurisdiction and case requirements, effective recovery generally relies on executing the following key steps: 

1. Securing Evidence and Protecting Accounts 

• Document transaction records, wallet addresses, timestamps, screenshots of evidence, and communications linked to the fraud. 

• Move remaining funds into a secure wallet set up on a new device or one protected by a newly created seed phrase, if possible. 

• Strengthen security by changing passwords for exchanges, registered email accounts, and links to financial services and enabling two-factor authentication to reduce the risk of further compromise. 

2. Reporting to Crypto Exchanges and Authorities 

• If the assets were held on an exchange, immediately notify the crypto exchange about stolen assets, as they may be able to freeze or flag funds linked to the fraud. 

• Depending on your jurisdiction, file official reports with the relevant authorities.  In the United Kingdom, this includes Action Fraud, the National Crime Agency (NCA), Serious Fraud Office (SFO), Financial Conduct Authority (FCA), your bank, and any other appropriate law enforcement agencies, to initiate investigations and support recovery actions. 

3. Legal Frameworks Supporting Recovery in the UK 

• The Financial Services and Markets Act 2023: Officially recognises crypto assets, integrating them into the UK’s financial regulatory framework. 

• The Property (Digital Assets etc) Act 2025: In its June 2023 report, the Commission determined that certain digital assets, including cryptotokens and nonfungible tokens (NFTs), qualify as “property” and should be legally recognised and protected accordingly. 

• Law enforcement, financial regulators, relevant courts, and exchanges collaborate to strengthen asset recovery, freeze suspicious funds, and combat crypto-related fraud. 

4. Freezing and Reclaiming Assets 

• Courts can issue freezing orders to prevent criminals from moving stolen funds through exchanges or offshore accounts.   

• When law enforcement takes over a case, seized cryptocurrency should be quickly moved to a secure device under their control to prevent remote access or unauthorised transfers. The handover should be conducted under dual control or recorded on video to preserve a proper chain of custody. 

• Blockchain forensic experts examine transaction patterns to trace assets as they move between wallets and platforms, helping support both civil and criminal recovery actions.  

• Legal professionals assist victims through civil litigation processes to reclaim digital asset. 

TenIntelligence Thoughts on Investigating Crypto Fraud

As cryptocurrency becomes more widely used, the risks of crypto fraud and illicit activities remain a pressing concern due to its decentralised and pseudonymous nature. Implementing robust compliance frameworks, investigation techniques, and clear legal protections is essential for reducing these risks and maintaining financial integrity. 

Blockchain explorers and analytics platforms, OSINT techniques, and digital forensics are key tools that support crypto fraud investigators and analysts in tracing suspicious transactions, identifying those responsible, and support efforts to help victims increase their chances of recovering their cryptocurrency. These methods also help strengthen regulatory compliance and enhance the security of digital financial systems. 

If you’d like to learn more, seek guidance or have any querie on how we can assist you with crypto fraud, tracing, and recovery, please feel free to reach out to TenIntelligence experts.

Please note: This content is provided for general informational and reference purposes only. It does not constitute legal, financial or professional advice and should not be relied upon for any decision or actions.

Frequently Asked Questions(FAQs) on Crypto Fraud