Ponzi Schemes & Crypto: Are You at Risk?

Cryptocurrency has opened the door to incredible financial innovation — decentralised finance, smart contracts, new payment models. But it’s also become a playground for scams. And one of the most dangerous, persistent threats in this space? Ponzi schemes.

The problem is: many investors don’t even realise they’re involved until it’s too late.

This article explores how Ponzi schemes operate within crypto, the red flags to watch for, and how to protect yourself before your money disappears.

Understanding what a Ponzi scheme really is

At its core, a Ponzi scheme is simple. It promises high returns to early investors, not from real profits, but from the money of new investors. As long as new people keep joining and putting in cash, the system appears to work — until it doesn’t.

Eventually, the flow of new money slows down. Payouts stall. The scheme collapses, leaving most participants with major losses.

Named after Charles Ponzi, who pulled off one of the first high-profile scams in the 1920s, the concept has evolved — but the structure remains the same.

Why crypto is the perfect storm for these scams

The crypto space is fast-moving, lightly regulated, and full of technical jargon that many newcomers don’t fully understand. This makes it ripe for abuse by those looking to exploit confusion and hype.

Here’s why Ponzi schemes thrive in the crypto world:

  • Lack of regulation makes it harder for authorities to intervene early
  • Anonymity allows fraudsters to disappear overnight
  • FOMO (fear of missing out) encourages rushed decisions
  • Complexity can obscure how funds are really being used

Crypto doesn’t cause Ponzi schemes — but it often hides them better than traditional finance ever could.

Common signs you’re dealing with a Ponzi scheme

Not every suspicious project is a scam. But here are red flags that should make you pause:

Unrealistic returns
If a platform promises 10% weekly or “guaranteed” profits, be sceptical. Real investing involves risk and volatility. Consistent high returns without clear explanation are rarely legitimate.

No clear business model
Where is the revenue coming from? If a project can’t explain — in plain language — how it generates profits outside of new user deposits, walk away.

Referral-heavy rewards
If a system pushes users to recruit others aggressively and rewards are based on your “downline” rather than actual investment performance, it’s likely pyramid-shaped.

Lack of transparency
Anonymous founders, no external audits, no access to company financials or smart contracts — these are major warning signs.

Pressure to reinvest earnings
Scams often encourage you to compound earnings within the system rather than withdraw — keeping your money locked in while the organisers profit.

Real-life crypto Ponzi examples

BitConnect (2016–2018)
One of the most infamous crypto scams in history. It promised daily profits via a “trading bot” and rewarded users heavily for referrals. At its peak, the token had a market cap over $2.5 billion. It collapsed abruptly, and thousands of investors lost everything.

PlusToken (China)
This mobile wallet lured users with 10–30% monthly returns and amassed over $2 billion before it was shut down. The operators were later arrested, but not before many investors lost access to their funds.

OneCoin
Marketed as a “Bitcoin killer”, OneCoin wasn’t even a real cryptocurrency — it had no blockchain. It raised billions globally through a multi-level marketing structure before regulators intervened.

These examples share a theme: bold promises, massive growth, heavy emphasis on recruitment, and no real economic substance behind them.

Not every crypto platform is a scam — but caution is essential

It’s important to clarify: not all high-yield platforms or crypto projects are fraudulent. But the lines can blur, especially when projects are new or poorly regulated.

Some decentralised finance (DeFi) platforms offer genuine yield based on liquidity provision, staking, or lending — but even these carry risk and require due diligence.

If you can’t explain how the yield is generated — or if it relies solely on bringing in more users — take a step back.

How to protect yourself in a high-risk environment

  • Do your homework
    Check who’s running the project. Are the founders public and credible? Has the code been audited? Is there a real business model behind the returns, or does it rely on bringing in new users? If the profits seem too consistent or too high, question everything.
  • Use verified platforms
    Stick to exchanges and wallets with a strong track record, regulated presence (especially in the UK or EU), and transparent teams.
  • Diversify
    Never put all your capital into a single platform, token, or yield programme. Spreading risk is key — especially in volatile markets.
  • Withdraw profits regularly
    If a project allows withdrawals, take profits out instead of reinvesting 100%. You reduce exposure while still keeping some skin in the game.
  • Trust your instincts
    If something feels off, rushed, or too good to be true — it probably is.

Protecting your future starts with smarter decisions today

You don’t need to avoid crypto altogether. But you do need to treat it with the same caution and rigour as any other financial market — especially when projects promise easy returns with little effort.The best way to stay safe? Educate yourself, ignore the hype, and choose long-term strategies over shortcuts. Because in crypto, as in life, slow and steady still beats flashy and fast — especially when the latter is built on lies.

Written By

Jones Taylor serves as Chief Strategist at AJ Bell, bringing with him a wealth of experience and a proven track record of success. Prior to joining AJ Bell, Taylor spent 16 years analysing global markets, with a particular focus on sectors such as consumer goods, agribusiness, mining, steel, and strategic planning. His international career includes a period in London, where, in his final role before joining AJ Bell, he was responsible for covering the European Consumer and Beverage sector. This global experience, combined with his degree in Business Administration from the University of Westminster London and his CFA accreditation, underpins his deep understanding of financial markets. Jones Taylor’s expertise has been recognised by Institutional Investor magazine, which ranked him among the top equity analysts for three consecutive years. Enhancing his already impressive credentials, Taylor has pursued further studies at renowned universities in London, adding an even more global and refined perspective to his analyses and strategic insights.