Understanding HYIP Scams (and How to Avoid Them)

You’ve probably seen it used on various forums or subreddits, the letters HYIP, but what does it mean exactly? It stands for high-yield investment plan. Yield, in this case, means profit. The concept of a high-profit investment is what all investors want, but HYIP scams are a trap that uses the most tempting of bait: a promise of quick, massive, and impossibly high profits.

Before I get into what an HYIP scam is and how it works, let’s look at how a traditional and much more realistic investment payout would look like in the stock market.

Understanding a Realistic Return

Many companies offer dividends to people that hold shares of their stock. A dividend is typically a small payment that is sent to the shareholders as a way of saying thank you for holding our stock. The amount of the dividend payout is usually between 0.5% on the low end and 10% on the high end. For the following example, I’m going to use STWD, a stock that pays out a consistent quarterly dividend of about 8.80% per year.

The average price of a share of STWD is usually around 20-22 dollars each, and the four dividend payments per year equal to $1.92 per share. Simply put, if you hold ten shares, you will get $19.20 in dividends.

Most large companies offer comparable or at least decent returns through dividends such as Apple (AAPL), Coca-Cola (KO), and Johnson & Johnson (JNJ). Of course, there are a number of things that could prevent payouts from happening, such as severe economic troubles for the company.

However, there are publicly available records to see how consistent this payout is (or isn’t) and so it’s easy to see whether or not this is a safe investment for you. My point is this, earning an 8.8% return per year is quite reasonable, realistic, and safe.

HYIP Scams: Too Good to Be True

Now, what if I told you that I knew a website that was promising a 4.5% return on your bitcoin… per day. What if I told you that using this website, you can more than double your money every single month, month after month, risk-free? If you are financially savvy, you will understand quickly that something isn’t right here. This kind of offer is too good to be true.

In recent years, these kinds of HYIP scams have been appearing left and right all over the internet. They advertise through a mix of paid promotions, website banners, Youtube ads, and by encouraging people to spread the word with paid affiliate links. There are numerous websites like the one I am describing above, but they all offer essentially the same thing. That being, impossibly high returns that could never mathematically be feasible or realistic.

The website I am referring to above is bitpetite.com, a site that claims to earn money for itself by being a coin mixing site.

They claim that customers go to them to essentially launder their cryptocurrency, by making it difficult to determine the origin and destination of funds. One could argue that the only people needing such a service would be criminals, but that’s beside the point.

The website could in fact claim to be doing just about anything, from lasers to diamond mines. This is all window dressing, and not at all relevant to how the scam works.

This is how the scam usually works. A website goes up suddenly with an anonymous owner, or under either a fake company or a real company that was registered in a country that has no consumer protection laws or no real way to track down the actual owner.

The website will have a slick and professional looking design ethic and will do everything it can to appear legitimate. The site itself will claim to be providing some kind of service or product and needs your investment in order to add to it’s incredibly popular and profitable business. In exchange for your investment, they will offer a yield that is so unbelievably high, it will essentially double your deposit every month, and they claim it’s all completely safe.

A HYIP Scam by the Numbers

Let’s pause for a moment and think about this.

If the site received $10,000 in deposits in its first month, it will need to pay out $20,000 by its second month, $40,000 by it’s third, $80,000 by it’s fourth, $160,000 by it’s fifth, up to $20,480,000 per month by the end of a single year, just from receiving $10,000 in its first month.

This is clearly unsustainable, and even the most profitable business on earth would not be able to maintain such a payout schedule.

After seeing up the site, the owners will advertise and attract an initial batch of victims, then send those victims out with affiliate codes to cover the web with links and testimonials. These victims are incentivized to lie, and say they’ve received huge, consistent payouts.

Next, the website will give the appearance of paying out massively. A user’s account will show daily profits. The average user will think to themselves, “If my money keeps doubling, I should it leave it in here as long as possible!”

One or two users will attempt to withdraw their money, and they might succeed, so as to give the site credibility. Once the site has reached a critical mass of deposits, or has attracted enough big investors… the site goes offline.

In one instant, it disappears, and along with it, all the deposits it was sent. There is nothing anyone can do to get their money back, it is gone forever.

So how can you identify potential HYIP scams?

Here are a few red flags to watch for when identifying HYIP scams:

• They offer impossibly high, daily returns that would double someone’s money quickly
• They claim a 100% guaranteed safe return
• They have an affiliate program, and almost all positive comments posted online about the site include an affiliate link
• They don’t seem to belong to anyone or were registered anonymously
• The site has been around for only a few months (laser.online claims to have only been up for just less than 100 days)
• The offer just seems too good to be true

It is possible to earn steady returns with cryptocurrency and other investments, but HYIP scams are not the way to do it.