The Human Factor: Social Engineering Risks in Crypto Assets and the Path to Institutional Resilience

The recent $91 million and $243 million Bitcoin thefts have exposed a critical flaw in the crypto ecosystem: the underappreciated vulnerability of human behavior. These incidents, executed through sophisticated social engineering tactics, underscore a systemic risk that transcends technical safeguards. While blockchain technology is often lauded for its cryptographic robustness, the human element—prone to manipulation, urgency, and misplaced trust—remains the weakest link. For institutional investors and portfolio managers, the lesson is clear: behavioral risk frameworks must become a cornerstone of crypto asset security.

The Anatomy of the Threat

The $91 million theft in 2025 involved a scammer impersonating a wallet provider's support agent, exploiting the victim's trust to gain access to their account. The attacker then laundered 783 BTC through Wasabi Wallet, a privacy tool designed to obscure transaction trails. Meanwhile, the $243 million Genesis fraud in 2024 was a multi-stage operation. Scammers, including 19-year-old Veer Chetal and his accomplices, spoofed Google and Gemini support calls to bypass 2FA, used screen-sharing software to extract private keys, and laundered the stolen 4,100 BTC through exchanges and mixers. These cases highlight a disturbing trend: attackers no longer rely on technical exploits but instead weaponize psychological manipulation to bypass even the most advanced security protocols.

The Behavioral Blind Spot

Traditional risk management in crypto has focused on operational and technical vulnerabilities—hacked exchanges, smart contract flaws, or infrastructure breaches. However, the rise of social engineering attacks reveals a critical blind spot: the behavioral dynamics of users. Cognitive biases such as trust in authority, fear of loss, and the urgency to act on perceived threats make individuals susceptible to manipulation. For example, in the Genesis case, the victim was tricked into resetting 2FA and sharing private keys under the guise of resolving a “hacked account.” This mirrors broader behavioral patterns observed in financial markets, where herding behavior and overconfidence often drive irrational decisions.

The lack of a standardized behavioral risk framework exacerbates this issue. While institutions may employ cold storage and multi-factor authentication (MFA), these measures are ineffective if users are coerced into surrendering seed phrases or private keys. The 2025 UK $2.8 million police impersonation scam further illustrates this: a fraudster used a prior data breach to craft a hyper-personalized attack, inducing the victim to input their cold wallet seed phrase into a phishing site.

A New Paradigm: Behavioral Risk Frameworks

To address these challenges, institutions must adopt a dual-layer approach: technical safeguards and behavioral risk mitigation. The Crypto-Asset Operational Risk Management (CORM) framework, proposed in 2024, offers a structured model. It integrates cognitive vulnerability theory with operational risk assessment, emphasizing real-time monitoring of behavioral deviations. Key components include:

1. Multi-Party Computation (MPC) Custody Models: Platforms like Zengo Business split private keys between user devices and secure servers, eliminating single points of failure. This reduces the risk of phishing attacks, as no single entity controls the key.
2. 2-of-3 Multisig Wallets with Geographical Redundancy: Distributing private keys across three locations (e.g., a safety deposit box, a personal device, and a trusted custodian) minimizes the impact of hardware failure, coercion, or local breaches.
3. AI-Augmented Threat Detection: Systems like the CryptoNeo Threat Modelling Framework (CNTMF) analyze communication anomalies and transaction irregularities in real time, identifying social engineering patterns before they escalate.
4. Behavioral Audits and Staff Training: Regular phishing simulations and AI-driven behavioral analysis help mitigate human error, which remains the leading cause of breaches.

Investment Implications and Proactive Strategies

For institutional investors, the cost of inaction is significant. The U.S. Treasury's 2022 executive order on digital assets mandates robust safeguards for institutional holdings, with penalties for non-compliance. A 2025 study by AnchorWatch found that institutions using insured multisig vaults experienced 30% lower breach rates compared to traditional cold storage. Meanwhile, platforms employing MPC solutions reported a 95% reduction in phishing-related incidents.

Investors should prioritize portfolios and custodians that integrate behavioral risk frameworks. This includes:
- Due Diligence on Custody Solutions: Favor providers using MPC or 2-of-3 multisig systems.
- Real-Time Verification Frameworks: Implement dynamic transaction confirmations to detect impersonation attempts.
- Collaborative Governance: Engage with regulators and industry stakeholders to advocate for standardized behavioral risk protocols.

Conclusion

The $91 million and $243 million thefts are not isolated incidents but harbingers of a broader threat. As social engineering tactics evolve to exploit human psychology, the crypto industry must shift from reactive to proactive risk management. By embedding behavioral risk frameworks into institutional strategies, investors can future-proof their portfolios against the most insidious threats. In a world where trust is both a strength and a vulnerability, the path to resilience lies in understanding—and guarding against—the human factor.