Real Investment or Ponzi Scheme? How to Know?

By  //  February 8, 2022

In the world of bitcoin and cryptocurrencies, it is common for numerous companies and investment platforms to promise high financial returns in a short period of time.

Investors must be prepared to discriminate between genuine and potentially fraudulent propositions. But sometimes it is not easy to distinguish between the two.

Ponzi schemes are the order of the day: we hear about these scams almost every week.

But what is a Ponzi scheme, and how can we characterize this common type of scam? 

The answer is simple, a Ponzi scheme is a way of defrauding investors. The scammers pay out profits to previous investors with funds obtained through investors who have more recently joined the scheme. The underlying idea is to make investors believe that the profits come from legitimate business activities.

Ponzi schemes are only sustainable as long as new investors come in with new funds, otherwise the whole scheme collapses, the pyramid collapses.

To be safe, you must choose a reliable crypto broker. We advise you to familiarize yourself with an excellent selection of bitcoin brokers.

Several international organizations have warned of the growth of such scams in recent times, especially during the pandemic crisis and in less financially literate countries. 

Lately, scammers have also been using sports celebrities and relevant influencers to promote their Ponzi schemes, which works to disguise scams as genuine investments.

There are several elements that every investor should evaluate before deciding to put his or her money into an investment platform. Let’s talk about some of them.

Guaranteed high returns

In the world of cryptocurrencies, it is relatively easy to make money, but it is also easy to lose money, and this is due to a characteristic of the cryptocurrency market: extreme volatility.

Even the best trader in the world cannot guarantee investors fixed and high returns from trading cryptoassets.

The promise of large short-term profits, especially generated through trading, is one of the main elements to doubt an investment platform.

It bears repeating that Ponzi schemes usually keep their word and pay early investors the pre-agreed return. This will happen as long as new members and fresh money enter the scheme. Arguments such as “I have always been paid” are not enough to guarantee that it is not a scam.

Special emphasis on recruiting new members

For a pyramid scheme to be sustainable, it is a prerequisite that new members come in, i.e. more money on a constant and sustained basis over time.

If an investment platform constantly insists and encourages its members to advertise and attract new investors, it is likely that the financial model behind it is based on a pyramid scheme. This is a reason to doubt the authenticity of the business model in which we are being offered to invest.

These affiliate schemes where you are encouraged to build your own team are an incentive to find new investors. Many do not even know it, but pyramid schemes first make you a victim and then practically force you to victimize other unsuspecting people.

Pyramid schemes are based on faith

Pyramid schemes are similar to religions in that they insist that you must always believe rather than verify. They often demand blind trust. Absolute trust is not a good way to go when it comes to finance and business.

Firms or companies that develop a Ponzi-like fraudulent scheme are often not transparent. Their explanations of the source of the income and returns they provide are never clear or auditable. Investors have no choice but to blindly believe the word or promises of an often charismatic leader.

Profits that come from obscure trading bots whose existence cannot be verified? Profits that come from a secret team of experts who do the investing for us? These arguments are common in fraudulent schemes. Don’t put your money there.