Re: "All investors had to do was hand over their Bitcoin..."
It works because they went to some rich investors and spun them a tale where their company is the only one that can provide some service. They get that power by offering very low prices until everybody else goes out of business and ruthlessly buying anyone who looks to be competing still. The theory is that they'd eventually get their monopoly, send the prices through the roof, and cash in. Investors listen to this, think about real monopolies, immediately stop thinking, and turn on the money line.
What those investors don't usually think about is how the monopolies that exist manage to keep that power, especially keeping in mind the barriers to entry which often don't apply to these companies' ideas. The leaders of the companies don't mind; they get a company to play with, a bunch of money to waste, a healthy salary, and a nice exit package when things finally go wrong. Some may run this as a scam, others are clueless, and still others actually have an idea that could work and try for it.