Bitcoin trading ponzi schemes are often advertised as high-yield investment programs or HYIPs. They purport to offer investor returns of up to 40 percent per month, through the use of a bitcoin trading bot. In reality, these schemes are nothing more than Ponzi schemes, using new investors’ money to pay off earlier ones.
As with any Ponzi scheme, sooner or later the inevitable happens, and the scheme collapses. As bitcoin trading schemes are on the rise, there is a lack of understanding when it comes to how these schemes actually work. Most people only see the potential to make quick and easy money from trading cryptocurrencies without understanding or realising the psychological factors involved in a Ponzi scheme.
Here, we will explore how these schemes work, why they are so appealing to investors, and what you can do to protect yourself from being scammed.
Table of Contents
What is a trading Ponzi Schemes?
A Ponzi Scheme is an investment fraud that uses the lure of bitcoins and a rapid rate of return to fool people, where a trader establishes a business with the sole objective of attracting funds. The scheme provides investors with significantly higher returns than those that might be available through legitimate sources, in an attempt to lure investors.
The one major difference between Bitcoin trading vs. equity trading is that you cannot buy or sell a bitcoin like a stock through Bitcoin Up. Bitcoin trading has anonymity as one of its biggest selling points, but it also makes it harder to track who is responsible for conning investors out of their hard-earned money.
There are different ways how a Ponzi Scheme works. The main idea behind it is to convince investors about the uniqueness and profitability of an investment strategy, in order to lure them in and fool them into “loaning” more funds to the scheme creators so they can generate returns for older investors and themselves by using funds from new investors.
How Bitcoin Trader/Pyramid Schemes Work?
There are a lot of people who believe that scams and Ponzi and Pyramid schemes have been around for centuries. They also think that Bitcoin is the perfect vehicle to exploit.
The problem with this assumption is that it suggests one should know how these scams and schemes work before they can identify them.
Bitcoin trader scams have been around for a while. The difference is that, in the past, they were restricted to chat rooms and forums or email. Today, with the widespread adoption and popularity of bitcoin trading and investment, we are seeing more of such schemes.
A ponzi scheme can be defined as a fraudulent investment operation where the operator pays returns to its investors from new capital paid by new investors, rather than from profit earned by the individual or organisation running the operation.
The fraudster may entice new investors by offering higher returns than other investments on offer elsewhere or because there is no apparent investment activity (no shares are bought and/or sold). There are two types of Ponzi schemes: traditional and virtual currency ponzi schemes.
A traditional Ponzi scheme centres itself around investments into real world assets such as stocks and property. Virtual currency ponzis are scams that offer returns when you invest in Bitcoin Trader/Pyramid Schemes or some other type of cryptocurrency.
Pyramid schemes also use this method. Investors who join early benefit greatly when other people invest because they own more shares but this eventually leads to a scam. The fraudster will promise a fixed return on investment in any given period of time with little to no risk. The scammer will also claim that it is a sure thing and risk-free.
Examples of Ponzi Schemes
The last few years have seen a surge of Bitcoin-related Ponzi schemes in various parts of the world.
A bitcoin scam is an investment scheme that promises potential investors unusually high and/or easily achievable profits. Bitcoin scams are often “pump-and-dump” schemes, where the scammer talks up the price of a particular predetermined virtual currency in order to lure investors who are not well informed about the product, but then quickly dumps any holdings they may have before making off with their money.
There are various examples of Bitcoin trading Ponzi Schemes. The most common ones include USI-Tech and BitConnect.
USI-Tech is a leading software technology company that is well-known for its innovative Bitcoin Trading Platform. The USI-Tech success stories have made it a favourite investment option for many people around the world. The company has seen rapid growth in its customer base, with numbers reaching well into the thousands in just the last few months of 2017.
Bitconnect is an open source all in one bitcoin and crypto community that offers multiple investment opportunities with cryptocurrency education where it also provides daily forecasts for various coins, including Bitcoin, Ethereum, Litecoin and Dash among others to make trading easier as you don’t need to worry about checking prices. Lumbercoin is one example of an MLM cryptocurrency that was called out for being a Ponzi scheme. The company behind this supposed cryptocurrency launched Lumbercoin back in 2017 with promises of making investments return up to 10%.
Summing it up!
Bitcoin trading scams have been on the rise in recent months. These scams often promise high returns, but in reality, they are nothing more than Ponzi schemes. In this article, we looked at how these scams work and the psychology behind them.