Lo said the four, who were aged between 14 and 39, were arrested on Friday on suspicion of conspiracy to defraud, as well as possessing and using 5,000 bogus banknotes.
Senior Inspector Mak Wai-kwong also warned young residents against turning to crime to make quick money.
“Young people are free during the summer holiday and should be aware of traps of being recruited to get involved in scams,” he said.
Police said the four suspects worked as a syndicate, with tasks clearly divided up.
Two were masterminds responsible for sourcing fake banknotes and premises to use as bogus cryptocurrency exchange shops, as well as seeking out victims online.
The other two suspects retrieved the banknotes from a mini-storage facility in Mong Kok, while the masterminds dressed up a nearby premises to pass as a legitimate business.
Lo said the pair behind the plan impersonated a well-known cryptocurrency investor to entice people with offers above the current market price for virtual currencies.
They then invited the victims to the store and showed them the stacks of fake banknotes in an effort to show they could easily settle the transaction, without handing over any of the cash.
“The suspects did not allow victims to untie the stack of HK$1,000 banknotes because only the top and the bottom ones were authentic,” she said.
The suspects then convinced the victims to settle the transactions online after winning their trust.
Once the cryptocurrency was transferred, the suspects immediately moved the assets out of the account and refused to pay.
Lo said the tactics were common in recent cases, adding that 14 people had been arrested over cheating 12 victims out of HK$11 million between October last year and Friday.
Inspector Mak called for heightened vigilance and said residents could check for the shimmering patterns on banknotes to ensure authenticity.
The production, circulation or passing of counterfeit notes has a maximum penalty of 14 years behind bars in Hong Kong.