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What is a Ponzi Scheme?
A cryptocurrency Ponzi scheme is an investment approach that generates greater profits from its previous investors, paying them with the money from later investors. The process goes on until individuals fail to pay anymore and run off with whatever prophets they have in their hand along with the investor funds they were holding. The scheme attracts new investors by promising greater return on investments that were blatantly impossible with little to no risk involved.
Various reputed and trustworthy investment professionals made billions of dollars through the Ponzi scheme for many decades. Nowadays, even in the world of cryptocurrency, the Ponzi scheme is leaving numerous investors in huge debts. Therefore, you must become familiar with common factors of Ponzi and other similar schemes to avoid them.
How do Ponzi Schemes work in the world of cryptocurrency?
The cryptocurrency Ponzi scheme primarily revolves around a business plan proposed by scammers who generate income by attracting investors. The identifying factor of the scheme is that it requires a continuous flow of money to survive and keep the operations running.
Therefore, scammers or fraudsters use funds received from investors to pay out their previous investors. This way, they keep the invested lured with the idea that they are generating greater profits by funding a business. As the scammers fail to connect with more investors in their business, the consistent cash flow and profits will end. Not only in the crypto world, but this scheme is prevailing in different industries and businesses today and deceiving people by applying the same strategies.
Let us check out the common red flags you must look out while investing in crypto:
No-Risk Investments
It is a known fact that investment involves a certain set of risks, and the greater the risk involved, the greater will be the reward. The Ponzi scheme scammers offer you high investment returns involving little to no risk to grab your attention. Therefore, beware of a similar proposal as it is possible that you are being involved in a bitcoin Ponzi scheme.
Unlicensed Parties
Federal and state securities require investment professionals to have a license. However, individuals running crypto Ponzi schemes and associated operations are unlicensed.
Consistent Return On Investment
In the world of cryptocurrency, the value of bitcoin keeps fluctuating, which directly affects investment returns. Therefore, be careful with the investments that are generating consistent profits amid inconsistent market conditions.
Documentation Errors
Minutely identify any excuses or reasons given regarding the delay in paperwork. Moreover, if the advisor fails to explain the business properly, look out for possible errors or identify the signs of fraudulent activities in the account statement. Moreover, sometimes the business strategies presented to you are complex and hard to understand. If something of this happens, you must drop the idea of that investment and look for other opportunities.
THE BOTTOM LINE
The number of crypto users is exponentially growing worldwide, and so are the fraudsters targeting to deceive the expanding industry to the cryptocurrency Ponzi scheme. Therefore, make mindful and strategic investments in cryptocurrency to generate greater returns.
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