Crypto Ponzi Schemes Guide
Ponzi schemes aren't a new phenomenon, but the crypto market has granted new opportunities to scammers. Learn about crypto Ponzi schemes and how they work.
Crypto Ponzi schemes mimic traditional Ponzi tactics, promising high returns and relying on new investor funds to pay earlier participants.
Notable scams like BitConnect and OneCoin have defrauded millions of investors worldwide.
Warning signs include guaranteed returns, vague business models, referral incentives, and withdrawal issues.
Victims should document their losses, report the scam, and check if they can claim tax deductions.
What is a Ponzi scheme?
A Ponzi scheme is a type of investment scam where returns are paid to earlier investors using the capital from newer investors. There’s usually no real profit-generating business behind it, just a cycle of robbing Peter to pay Paul. It’s named after Charles Ponzi, a con artist from the 1920s who promised investors huge returns on international postal coupons.
Here’s how a typical Ponzi scheme works:
The scammer promises high, consistent returns with little to no risk.
Early investors do get paid. This builds trust and encourages them to reinvest or recruit others.
New money is used to keep the illusion going.
Eventually, the scheme collapses when new investments slow down, or too many people try to withdraw their money.
Read next: Common Bitcoin Scams
Is crypto a Ponzi scheme?
No, crypto itself isn't a Ponzi scheme. Cryptocurrencies like Bitcoin or Ethereum are decentralized digital assets that operate on blockchain technology. They aren’t inherently scams, they’re just tools.
However, the lack of regulation, the hype, and the sometimes confusing tech around crypto make it a playground for scammers. In that environment, it’s easy for a Ponzi scheme to hide behind slick websites, vague whitepapers, or even influencer endorsements.
So while crypto itself isn't a scam, scammers use crypto, just like they’ve used emails, telephones, or fake charities in the past.
How do crypto Ponzi schemes work?
Crypto Ponzi schemes follow the same blueprint as traditional ones. Here’s how they typically play out:
The pitch: The scam often promises high returns. Maybe 1% per day or "guaranteed" doubling of your crypto in 30 days. They’ll dress it up with techy jargon, buzzwords like “blockchain arbitrage” or “AI trading bots,” and sometimes fake trading dashboards.
Recruitment: You're encouraged (or incentivized) to bring in others. This overlaps with pyramid schemes and gives the illusion of “community growth.”
Fake returns: Early on, you’ll see your account balance grow. Some people even get withdrawals. This is key to building trust. But those “profits” are just coming from other people’s deposits.
Sudden disappearance: One day, the site goes down, withdrawals are “paused for maintenance,” or the founders vanish. Game over.
Common crypto Ponzi formats
High-yield investment programs (HYIPs): Websites offering unsustainably high daily returns.
Mining or staking platforms: Claiming to mine/stake tokens for profit but using deposits to pay earlier users.
Fake DeFi protocols: Using smart contracts to mask how the funds are really being used.
Examples of crypto Ponzi schemes
Over the past decade, several high-profile crypto Ponzi schemes have emerged, defrauding investors out of billions of dollars. Some of the most notorious examples include:
BitConnect
BitConnect is perhaps the most well-known example of a cryptocurrency Ponzi scheme. The platform promised investors daily returns of up to 1% through a proprietary “trading bot” and volatility software. To participate, users were required to purchase BitConnect’s native token (BCC) and lock it into the platform’s “lending” program, with the promise that the system’s automated trading would generate profits.
At its peak, BitConnect reached a market capitalization of over $2.5 billion, with BCC becoming one of the top 20 cryptocurrencies by value. However, regulators in the UK and Texas issued warnings about its operations, and by January 2018, the platform abruptly shut down, citing regulatory pressure and attacks from "bad actors." The value of BCC plummeted by over 90% in a matter of days, resulting in estimated investor losses of over $1 billion. Legal action followed, and several individuals involved in the scheme were indicted or sued in the U.S. and abroad.
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PlusToken
PlusToken was a fraudulent investment platform based primarily in China and South Korea. It marketed itself as a cryptocurrency wallet that rewarded users with high monthly returns, often between 8% and 18%, for holding funds in the platform. The operators claimed these returns were generated through a sophisticated “arbitrage trading” strategy that took advantage of price differences across global crypto exchanges.
In reality, PlusToken was a large-scale Ponzi scheme that accumulated over $2 billion in cryptocurrencies from more than 3 million users. The platform’s token, also called PlusToken, was used as a key part of the deception, similar to BitConnect. When withdrawals were suddenly halted in mid-2019, it triggered panic among investors and ultimately revealed the fraud.
Chinese authorities later arrested over a dozen individuals connected to the scheme, and a significant portion of the stolen funds was recovered.
Forsage
Forsage branded itself as a decentralized smart contract platform operating on Ethereum and later the Binance Smart Chain. It promised users the ability to earn passive income by joining a global “community” and participating in a peer-to-peer matrix-based referral system. The platform claimed to be “fully decentralized” and immune to fraud, thanks to its use of smart contracts.
Despite this positioning, Forsage was fundamentally a pyramid-style Ponzi scheme. Participants had to purchase a slot to join and then recruit others to earn rewards, with payouts structured to benefit those at the top of the referral chain. The U.S. Securities and Exchange Commission (SEC) charged the platform’s founders with fraud, asserting that Forsage used new investments to pay earlier investors, while falsely claiming the system was sustainable and legitimate.
The scheme is believed to have attracted over $300 million from users worldwide before being formally dismantled by regulators.
GainBitcoin
GainBitcoin was a multi-level marketing scam, operating under the guise of a Bitcoin cloud mining platform. Based in India, the platform promised fixed monthly returns, often as high as 10%, on Bitcoin investments that were supposedly used to lease mining hardware and infrastructure. In reality, there was no substantial mining activity, and returns were paid out using the deposits of new investors.
The scheme was led by Amit Bhardwaj, a self-proclaimed crypto entrepreneur who also launched a series of related ventures, including GBMiners and MCAP token. GainBitcoin is believed to have defrauded over 230,000 investors, with total estimated losses exceeding $3 billion, making it one of the largest crypto Ponzi schemes ever uncovered.
After years of evading authorities, Bhardwaj was arrested in 2018 but was later granted bail. He passed away in early 2022 due to a reported cardiac arrest, leaving many questions about the full extent of the fraud and the recovery of stolen funds still unresolved.
OneCoin
Founded in 2014 by Ruja Ignatova, a Bulgarian businesswoman who styled herself as the “Cryptoqueen,” OneCoin was marketed as a revolutionary digital currency that would rival Bitcoin. In reality, OneCoin had no functioning blockchain and no real cryptocurrency; everything was controlled internally by the company, and the tokens held by users had no actual value outside the platform.
The scheme used a classic multi-level marketing (MLM) structure, encouraging members to purchase “educational packages” that supposedly taught users about crypto investing, and users were also heavily incentivized to recruit others.
OneCoin expanded into more than 175 countries, targeting financially vulnerable individuals with promises of life-changing returns. However, by late 2017, the fraud began to unravel. Investigations revealed that there was no public blockchain behind OneCoin, and internal documents showed that the company’s price data was fabricated.
Ruja Ignatova disappeared in October 2017 shortly before U.S. authorities unsealed an indictment against her. She has been missing ever since and is currently on the FBI’s Ten Most Wanted list. OneCoin is believed to have defrauded investors out of more than $4 billion globally.
Read next: How to Avoid Crypto Scams
How to spot a crypto Ponzi scheme
Spotting a Ponzi scheme can be tricky, especially when they’re dressed up in slick branding. Some red flags to watch out for include:
Guaranteed high returns with little or no risk
Referral bonuses that make recruitment the real focus
Vague or no explanation of how the business actually generates profit
Pressure to reinvest or keep funds locked in
Lack of transparency about team members, audits, or financials
Buzzwords with no real meaning: “quantum AI bots,” “decentralized hedge fund,” etc.
No ability to withdraw funds, or frequent delays with suspicious excuses
Remember, if it sounds too good to be true, and no one can clearly explain how it makes money (without recruiting others), it’s probably a Ponzi.
How to recover funds from a crypto Ponzi scheme
Recovering funds from a crypto Ponzi scheme is tough, but not impossible. Here are some steps you can take:
Stop investing immediately. Don’t throw good money after bad.
Collect all your evidence: Emails, transaction IDs, screenshots, usernames, URLs, wallet addresses, and more.
Report it to your local authorities, financial regulators, and crypto crime units (like the FBI’s IC3 or the UK's Action Fraud).
Check if there’s a class-action lawsuit or official recovery effort. Sometimes, seized assets get returned to victims.
Contact your exchange or wallet provider. If the scam was recent, they might be able to flag or freeze involved addresses.
Just a heads up: professional “recovery services” are often scams, too. Be extremely cautious if someone offers to recover your funds for a fee.
Read next: How to Report Stolen Crypto
Dealing with your taxes
Unfortunately, getting scammed doesn’t automatically let you off the hook with the tax office.
Even if you’ve lost your crypto in a Ponzi scheme, there’s still a chance the tax authority in your country expects you to report it, but in some cases, you might be able to use that loss to your advantage.
In many jurisdictions, you may be able to report scam-related losses as capital losses. This means you could potentially offset gains from other investments, reducing your overall tax burden. However, not every country treats crypto scams this way, and the rules can get complicated fast, so you should always speak to a qualified tax professional.
If you have losses from a scam, Koinly can help with your tax deadline. You can easily document everything in Koinly and tag this crypto in Koinly to make it easy to report it to your tax office. Try it free today.
Read next: How to Report Stolen Crypto on Taxes
