3 Reasons to Avoid Crypto Ponzi Schemes like BitConnect

Lately there’s been a surge of YouTube marketers incessantly shilling how much money they’re making promoting Ponzi schemes like BitConnect. These schemes hide behind blockchain technology and use it as a more efficient means to keep their Ponzi running. Technology is inherently neutral and can be a double edged sword, so just because something uses cryptography or a blockchain doesn’t mean it’s useful or ethical. 

BitConnect has cheesy conferences that look remarkably similar to Onecoin. The main difference is that Onecoin only used “blockchain” and “crypto” as buzz words but their “coin” was just a credit point system stored on their centralized website. BitConnect has taken things one step further than Onecoin by actually using blockchain tech to facilitate their scheme. Unlike obvious scams like Onecoin, using blockchain tech allowed BitConnect to slide under the radar and get listed on coinmarketcap as well as multiple exchanges. 

Why is BitConnect a Ponzi? 

A Ponzi is a scheme that pays dividends or interest to old investors from money coming in from new investors. This can generate lots of hype and spread quickly since many will see this as an easy way of generating passive income.

The problem with Ponzi schemes is that they’re based on a false model of infinite returns. They are not sustainable because eventually they reach market saturation where there are no new investors to recruit and the money runs dry. Once new money stops flowing in, there’s nothing left to pay old investors with so the entire scheme implodes with over 50% of the investors losing everything. 

BitConnect uses crypto lending and recruitment to facilitate their Ponzi. They allow investors to deposit BTC and convert it into their BCC coin. This coin can then be locked up as a “high interest loan” to make daily returns. Users can also recruit others and make returns based on the loans of their referrals. 

Users are highly encourage to compound their interest by continuously reinvesting their daily returns into the lending system. This can start to generate some impressive looking paper returns but the catch is that the money is locked up for 120-299 days. 

The “lock up” period has the potential of keeping this scam going for years before it collapses. When it does collapse, everyone’s paper profits will evaporate with it. 

If you’re thinking of participating in such a scheme, here are three reasons why you probably shouldn’t. 

Ponzi Schemes are Unethical 

Even if you’re able to make some profit and manage to withdrawal some of it, doesn’t mean that you should. There are many ways to make money in the crypto industry without needing to participate in scams. 

Crypto is based on free market principals and the technology makes it difficult to control. For this reason, the industry is highly centred around reputation and if you actively promote these schemes you will become a pariah within the crypto community. The only people who will follow and support you are those who are naive or also participating in your scheme. You will destroy all credibility and even your following will turn against you with pitch forks once the scheme collapses. 

Ponzi Schemes are Illegal 

Just because BitConnect uses a blockchain doesn’t mean it’s immune from legal punishment. Regulators are starting to crack down on sketchy crypto schemes and unregistered securities. The SEC has a special task force to investigate crypto investments and it’s certain that they will hunt down the lowest hanging fruit first. This means that crypto schemes and ICOs that are obviously fraudulent will be their easiest targets. 

If you have a following and are actively promoting Ponzi schemes, you’re putting yourself at a great degree of risk because they are illegal. Everyone is expected to conduct their own due diligence, so ignorance of the law is no excuse. 

A few years ago someone by the name of Josh Garza ran a “cloud mining” Ponzi with some crypto called Paycoin. He was recently ordered to pay over $9M in damages and could face up to 20 years in prison. 

You Can Lose All your Money

Paper profits don’t actually mean anything until they are realized. Just because you have hundreds of thousands or millions of dollars locked up in paper profit doesn’t mean you’ll get to keep any of it. You’re playing a game of hot potato and eventually the money will run dry and your paper profits can disappear. 

Every trade and investment is about risk to reward. Sure you could make some returns on a Ponzi scheme but you also risk your money, reputation and freedom. There are better ways to make returns in crypto without having to go to the dark side. 

Final note: some people ignorantly call Bitcoin or cryptocurrency in general a Ponzi scheme. This is false and misleading information that confuses people from being warned about real Ponzi schemes. Here’s an article explaining the difference. 


Rocky is a cryptocurrency analyst, strategic consultant, educator, position trader and investor. He started his journey learning about Bitcoin in 2013, became obsessed with it and dropped everything to work full-time in the space since 2015.