Bitcoin Ponzi Scheme Sparks Multiple Warnings to Investors


The U.S. government has come out and warned investors that Bitcoin may be used as a Ponzi scheme and is a dangerous form of currency in which to become involved. Earlier this month, the U.S. Securities and Exchange Commission issued a warning entitled Ponzi Schemes Using Virtual Currencies and specifically pointed out that Bitcoin is vulnerable to such schemes which are designed to scam people out of their money. One such scheme has already been revealed and some predict there could be many more to follow. Now, the Bitcoin Ponzi scheme is sparking multiple warnings to investors.

In addition to the U.S. government warning investors, several authors for large publications have come right out and stated that Bitcoin is, in and of itself, a Ponzi scheme. Large, reputable papers such as Forbes and Time have published articles on the SEC warning stating that investors should “beware” of getting involved with Bitcoin.

The SEC is not the only official government body warning investors about the potential for Bitcoin to be a Ponzi scheme; the North American Securities Administrators Association (NASAA) listed all digital currencies as one of the top ten threats to investors last year. The Financial Industry Regulatory Authority (FINRA) also issued its own warning, stating that :

Digital currency such as Bitcoin is not legal tender. No law requires companies or individuals to accept bitcoins as a form of payment. Instead, Bitcoin use is limited to businesses and individuals that are willing to accept bitcoins. If no one accepts bitcoins, bitcoins will become worthless.

Many of the warnings to investors on the dangers of Bitcoin center around the fact that it is not secured by any government or regulatory body and thus, there is no way to recover it if it stolen. It is also vulnerable to hackers and there is a danger of the Bitcoin “miner” losing everything with no way to recover it.

Many of the warnings also state that Bitcoin is often involved in illegal activities such as money laundering and other forms of fraud. Since it is not policed or governed by any regulating body, it is vulnerable to being used by criminals and terrorists, claims the U.S. government.

According to the SEC, some of the most dangerous warning signs to watch out for when thinking about getting involved with Bitcoin or any investment are:

-Large initial investment up front with the risk not adequately disclosed

-Secret strategies and/or structures of payments

-Sellers who are not licensed

-Invitation into the program by a friend or family member

-Returns that seem very consistent or promises of very high returns

-Payouts that are difficult to obtain

These and other warning signs can indicate that the investment is not legitimate. The U.S. government states that all consumers need to be aware of the risks involved with Bitcoin as well as other digital currencies because they are particularly vulnerable to being exploited by fraudsters.

Whether Bitcoin itself is a Ponzi scheme is the subject of intense debate between advocates of the system and the U.S. government as well as consumer watchdog organizations. However, as with any investment opportunity, say financial experts, it is best to thoroughly explore the facts before committing any amount of time or money to the program.

By: Rebecca Savastio


New York Post


United States Securities and Exchange Commission