The price of Bitcoin has been on a rollercoaster ride this week with the cryptocurrency hitting a 12 month high of $490 until settling back down to its current price (at the time of writing) of $360.

We’ve discussed the possible reasons behind the Bitcoin price rise in a previous post, but one of the theories previously mentioned is gaining currency as the main cause, and that’s the popularity of a Bitcoin-based Ponzi scam in China.

The MMM Ponzi scam claims to offer through its “mutual-aid program” a 30 percent monthly return to investors who are able to invest as little as $10, payable only by Bitcoin, with a side program called “MMM Extra” offering a return of 100 percent per month or (and they actually use this figure) a cumulative 409,600 percent per year.

Like many Ponzi schemes, users are also able to obtain bonuses for referrals or posting testimonials online, with users receiving 10 percent from what the company refers to as “all donations of the participants you invited.”

There’s also a classic multi-level marketing style referral scheme on offer for members who become “managers” who “create their own multi-level structure” offering tiered bonuses from “all contributions of the members of their structures.”

MMM claims among other things that it’s not a high yield investment program (HYIP) and that it is legal because it is a mutual benefit fund sees people “help each other for free, and absolutely consciously…transfer money directly to each other, from one bank account to another, without any conditions, guarantees and promises,” which is ironic given the returns being offered.

“Thus, MMM is absolutely legal and does not break any laws. Because there are only money transfers between private persons and nothing more,” the site notes.

Russian connections

The scam is a recycled version of a Ponzi scheme run by Sergey Mavrodi, a former Russian parliamentarian since jailed for fraud for running the exact same scam under the same name in Russia itself.

Despite reportedly being behind bars Mavrodi has not only targeted China, but is also picking up business in India, South Africa, the Philippines, and Brazil as well, with Bitcoin being used in at least South Africa to fund payments, with South African Bitcoin exchange BTCC Chief Executive Officer Bobby Lee issuing a warning to its customers and potential Bitcoin investors that BTCC is in no way affiliated with such schemes, and that investors must consider validating the entity promoting any bitcoin related investments to ensure its legitimacy.

Although the scheme is open to anyone globally, the targeting of poorer countries or those without adequate financial safeguards seems to be an intentional ploy by Mavrodi to get away with his Ponzi scheme while avoiding the attention the scheme would naturally gain in Western democracies.

How long the scam will affect the price of Bitcoin isn’t clear at this stage, but with the publicity it is gaining hopefully more people worldwide, and particularly in China, will know upfront not to get involved.

Update: for more information see out post “everything you need to know about the MMM Bitcoin scam.”

Image credit: screenshot/MMM Global