Login

Nonsensical Idea of the Day: "Bitcoin is a Ponzi Scheme"

It is absurd to label bitcoin a Ponzi scheme. Yet that is what Jim Rickards says. Ironically, Bitcoin is an anti-Ponzi setup, regardless of what it is used for, regardless of whether or not it's in a bubble.

In a video interview with Hedgeye CEO Keith McCullough, not only did Rickards state that he agreed with Jamie Dimon, he made this claim "I call it a Ponzi with no one in charge. There's no Madoff, but it's working that way.”

Rickards points out that primary uses of Bitcoin are money laundering, capital flight, etc. But what does that have to do with being a Ponzi scheme?

“Bitcoin has not been combat tested in a business cycle. We have not had a recession or a financial crisis since 2009. I’ve seen all these other asset classes go through many business cycles. I know how they’ll behave. Bitcoin has not been tested in that arena,” says Rickards.

I agree. But what does that have to do with being a ponzi scheme?

Ponzi Definition

A Ponzi Scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.

There is no revenue to speak of. When someone buys a bitcoin someone else gets a bitcoin. The number of coins slowly increases in time but the algorithm itself helps prevent fraud. It does not stop theft or someone losing their keys and thus their coins, but again that does not fit the definition.

Nor does the fact that criminals demand ransom in bitcoin. There are fraudulent activities in dollars, euros, silver, gold, and yes Bitcoin. If fraudulent activity makes a currency a Ponzi scheme, then gold is a Ponzi scheme as well.

There is no magic bullet that will stop fraudulent activity, but the key is the currency in and of itself is neither a fraud nor a Ponzi scheme.

Those looking for Ponzi schemes might wish to consider public union pension plans or preposterous amounts of interest on public and private debt that require ever-increasing amounts of debt to keep the system running.

Neither Bitcoin nor gold have anything in common with debt pyramids Ponzi schemes.

Rickards' Game

Rickards has increasingly makes nonsensical statements of which I believe he has to know better.

Hype sells.

If Rickards is seeking publicity, well, he got it. Congratulations. I prefer other ways.

Mike "Mish" Shedlock

"Where's the revenue? There is no revenue and no dividends. There is no interest paid. A stream of new investors is not required. " It would seem to me that the stream of new investors is those buying crypto.....why else is the price rising? The revenue would be those selling their inflated crypto. Buy for $1500, sell for $5000.....good dividend while still holding the bulk of your original investment.

madashellowell, there does not need to be revenue or dividends but there does need to be some underlying value. Where is the revenue or dividend for gold? There is none. So is it a Ponzi? At the end of the day value derives from scarcity. When the conquistodores brought back incan gold to Spain, the qty of gold in the region skyrocketed relative to the production. The result was a big drop in the buying power of gold. Of course, that stabilized over a few years, like a golden stone being thrown into a lake of molten gold. We are learning that gold is only made in supernovas or in the collapse of binary neutron stars. So it is rare indeed. The crypto known as Bitcoin has a limited number of units architected into its design but now there are many hundreds of cryptos, all of them having all the same benefits as the one known as Bitcoin. The only advantage of Bitcoin brand crypto is name recognition and thus liquidity. But there is no "gold-like" precious metal and all of the easy to find gold has been scooped up already. The simply aren't making any more of it. Cryptos can be made over and over again with little effort, just like any other worthless fiat currency. Bitcon (sic) will eventually become known as a mania, a flash in the pan. Gold and silver not so much. They have already stood the test of time.

I think it actually has a pyramid scheme architecture. The cost of mining escalates with time forcing the value up until it is no longer producible. Likely the concept was to create artificial depletion. In reality the iterations required to complete the last block change could be infinite.

Everything is a "BUBBLE". Consider it. Technologies emerge, grow(inflate), and eventually get replaced (shrink). So, Everything is a bubble. Bubbles aren't bad by merely existing. Those who imply so are trying to manipulate their hearers. Beware the liars...

Think non denominational piece of paper (blank) someone buys it for what they think it's worth.

Stories