China Intensifies Crackdown on Online Crypto Pyramid Schemes

China seems to be in no mood to cut cryptocurrencies any breaks. From its ICO ban in September, to talking about shutting down all centralized exchanges and even forcing miners to migrate, the crackdown has been persistent. Now, it appears that the country’s public security ministry will be hunting down crypto-based pyramid schemes online.

“The ministry will act jointly with the industrial and commercial department to stamp out pyramid-type schemes, besides punishing those who swindle students and vulnerable groups,” reportedReuters.

Pyramid schemes, sometimes also called multi-level marketing (MLM) programs, offer very high incentives for investments along with lucrative referral bonuses.

Typically, older investors are paid their profits using new deposits taken from fresh sign ups. Since these programs encourage referrals, the whole flow depends on new people joining. Additionally, such schemes promote compounding, where investors are lured into re-investing profits for even bigger returns.

Ultimately, after initial payouts, when trust is built and more people join, pyramid schemes usually disappear with the accumulated pool of money.

Such schemes are nothing new, but cryptocurrencies provide another profitable avenue to scammers, particularly given their increasing popularity.

One such suspected project is BitConnect, which offers up to 40% returns on investment along with referral bonuses. Just recently, thecompany announced the closure of their platform, paying back all investors in the native BCC tokens, which crashed severely, from a range of $400 to under $10.

As new investors flock to cryptocurrencies, it is important to remember that anything which promises guaranteed returns at rates “too good to be true” should be seen with skepticism.