Don’t Fall For Crypto Scams: Five Signs of Crypto Ponzi Schemes

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Scams and schemes are available in anything that relates to monetary gains, this includes cryptocurrencies. There are dishonest activities out there that can victimize new crypto enthusiasts, to be specific. What is a Ponzi scheme? How can they be identified? How can the enthusiast be protected from these illegal activities? These questions will be answered later in the article.

This article is not financial advice. This article aims to educate about the existence of crypto-related Ponzi schemes and to help avoid such activities. Do due diligence in researching before investing in cryptocurrencies.

What is a Ponzi Scheme?

Ponzi schemes are fraudulent investment scams that operate by paying off prior investors with money taken from investors that the latter invested into it. Unfortunately, these late investors will not be paid in the process.

This scheme was initiated by Charles Ponzi, hence the name Ponzi scheme. He managed to victimize hundreds of people into the scheme in the early 1920s by promising huge investment returns to those who would invest in this “business”. Later, Charles Ponzi was arrested when the government intervened. 

What are the 5 Signs of a Crypto Ponzi Scheme?

Here are five signs of a crypto-related Ponzi scheme:

  1. The promise of far-fetched gain. The offer of minimal risk in the investment in return for a higher return for a certain period of time despite the market condition. 
  2. Be aware of entities requiring their investors’ money to be locked up for a long period and re-invest the profit after.
  3. Project spends more on advertising than on the product.
  4. Entities are not transparent about their operations. They tend to withhold access to documents that attest to the legitimacy and existence of the business and its investments.
  5. Entities have complicated business models to understand with external companies present.

How to Protect Yourself from Crypto Ponzi Schemes

Five Signs of Crypto Ponzi Schemes
Five Signs of crypto Ponzi schemes.

To safeguard enthusiasts’ assets and avoid falling into Ponzi schemes, here are some guidelines on how to protect enthusiasts.

  • Be a skeptic. Anything that is too good to be true needs a lot of research and questions to know if the project is credible or not. Any investment opportunity that promises quick or high returns, with minimal investment, is probably dishonest and may have complicated mechanisms or procedures.
  • Beware of spontaneous opportunities. A sudden invitation to take part in a long-term opportunity to invest is usually a red flag. Never do invest even if the invite came from an acquaintance.
  • Check out the team behind the project. The entity promoting the investment should be investigated. A reputable financial advisor, broker, or brokerage company, will be registered and monitored by the proper governing bodies.
  • Do not trust. Verify. Legitimate investments should be legally registered by the government. Do a background check on their documentation. If they are not registered, a good and reasonable explanation should be provided. 
  • Make sure to understand the investment well. Research all possible aspects of the investment before making a decision to invest in it. Do not rely on hearsay or personal advice.
  • Report to authorities. After careful research and enthusiasts determine the opportunity is a Ponzi scheme, it is important to report these to the appropriate authorities. This will help to protect future investors from becoming victims of the same scam.

Closing Thoughts

It is important for investors and crypto enthusiasts to be vigilant of any Ponzi schemes out there. Knowing the signs of a possible Ponzi scheme can help bring an investor to a sound decision to back out of the investment or not invest at all to avoid any loss in his hard-earned money. Invest wisely and be knowledgeable of the way they can scam people and also help other investors to be aware of these practices.

This article is published on BitPInas: Don’t Fall For Crypto Scams: Five Signs of Crypto Ponzi Schemes

Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.

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