How to Spot a Crypto Ponzi

發佈於 Oct 19, 2022 | 部落格


Many investors come to crypto with the hope of getting rich quickly and retiring on a white sandy beach with crystal clear waters. After all, the industry has spawned many millionaires who appear to have made something out of nothing, so why shouldn’t it be possible for them too? In reality, while the volatility of crypto markets can lead to some overnight fortunes being minted, investing in crypto is just like investing in anything else – those who perform due diligence and invest with patience are the ones who are most often rewarded.

Due to the prevalence of unsophisticated traders who rush into the market during bull runs, crypto has seen more than its fair share of Ponzi schemes – that and the perception among criminals that it will be easy to escape into the dark corners of the internet with their ill-gotten gains, which is sometimes true and sometimes not.

Although Ponzi schemes tend to thrive more under market conditions that do not very much resemble the current bear market, it’s still worth reminding ourselves now and again of the telltale signs of a crypto Ponzi and what we can do to avoid them.

What is a Ponzi scheme?

A Ponzi scheme is an age-old scam that involves a criminal pretending to be able to deliver lavish returns, which he sometimes pays out to early investors with the money of newer recruits. Typically, the Ponzi’s funds are minimally invested or in many cases not even at all. One day, the burden of having to lure an endless stream of investors becomes too much, and the whole edifice begins to crack – either that or a market downturn spurs mass withdrawals, and the scam artist is unable to deliver.

The term dates back to the 1920s, when the Italian-American Charles Ponzi offered investors 50% returns in 45 days, or 100% returns in 90 days, with a postage stamp scam that ultimately landed him in jail. However, variations on the scheme, also known as “robbing Peter to pay Paul,” precede the notorious Mr. Ponzi.

How do you spot a crypto Ponzi?

Crypto Ponzi schemes come in a colorful variety of forms, but there are certain characteristics that tend to accompany them whichever manifestation they take. Below is a list of some of the more common to watch out for.

Big returns for low risk

It’s typical for Ponzi schemes to advertise massive gains for little to no risk on the part of the investor. This runs counter to the nature of investing, however, where high rewards by definition are accompanied by high risks. Otherwise, everyone would be getting in on the action.

It should be a red flag if any project offering outsize rewards is simultaneously hyping the safety of the investment.

Improbably consistent returns

Many Ponzi schemes report consistent returns to their investors month after month, often outperforming the market and regardless of cyclical conditions. With even the most solid of real investments, returns tend to experience some volatility in the short term even if the trend is upward over a longer period. Beware of any crypto projects leading people to believe they consistently outperform the market and especially when the economy is in the doldrums.

Registration issues

Checking up on the registration details of any crypto projects is a must for potential investors. Legitimate crypto entities will generally have submitted documentation to the relevant authorities in their domicile jurisdiction so as to avoid incurring penalties. Such documentation will usually include explanations of how the business plans to generate revenue. If you notice that a project hasn’t filed this information or is domiciled in a notoriously lax jurisdiction, it might be time to look for a more legitimate project.

Extremely elaborate or secretive investment plans

Frequently a Ponzi scheme will claim it is able to offer its ludicrously high returns due to some complex trading strategy the average person cannot understand. In these cases, the scam entity might spend a lot of time hyping the genius of its founders. In the case of the 2016 Bitconnect Ponzi scheme, investors were encouraged to lock up their tokens with the company so that its cutting-edge trading software could generate 120% annual yields.

If there is a trading strategy that is either incomprehensible or kept hidden under the guise of proprietary concerns, there’s a good chance you’re looking at a Ponzi.

Liquidity issues

While there are some investments that may have good reasons for lower-than-average liquidity, such as real estate, in crypto this should generally not be the case. If a project is low on liquidity compared to seemingly similar operations, it’s good to ask why that is the case and if perhaps the answer is because it’s a Ponzi.

Shared affinity

Sometimes Ponzi schemes will seek to prey on the members of a certain community, attempting to connect with them on the basis of some shared identity connection that may be based on ethnicity, religion, or some other characteristic they hold dear. One recent example is CryptoFX, which the US Securities and Exchange Commission (SEC) alleges targeted the Latino community in Texas with overpriced seminars set up to lure investment that only went to support the founder’s lifestyle.


With all of the obstacles people face when it comes to financial advancement, it’s no wonder that crypto has become an alluring sector for inexperienced investors looking to get ahead in life. For many people with amounts of capital that would have taken many years if not decades to grow substantially in the stock market, crypto has indeed delivered.

That said, many of these people had their ear to the ground and saw revolutionary technologies and services for what they were before they took off. And still others just happened to get lucky. It’s important to remember that nothing is free in life, and if you can’t figure out who the sucker is, it might just be you.

Even though we’re in a bear market and for now you’re less likely to encounter Ponzi schemes than you are decentralized finance (DeFi) hacks, malware, or other types of criminality in the space, you can never be too careful when it comes to performing your due diligence on a crypto project. 

After all, you can be sure the next generation of crypto Ponzis that emerge from this bear market will be more sophisticated than ever, so you should do your best to be too.