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Crypto is a big Ponzi scheme

I’ve been following crypto since 2017 and joined in the bubble then. I still have some coins in Binance. I have since had a good look at the market and have concluded it’s all a big Ponzi scheme propped up by a stable coin called Tether.

This view is becoming more mainstream now and as more people look, the evidence becomes overwhelming. If you have any Crypto, I’d advise you to cash some out. Ponzi schemes can last for years. Bernie Madoff only got foiled due to the Great Financial Crisis and people needed to cash out. There were rumours for years he was running a Ponzi scheme.

So why is Crytpo a Ponzi?

A well reasoned article here but in the age of social media, a lot of people will not read something so long. I’ll try to give my own reasoning. I’ll stick with Bitcoin as it’s the most well-known one.

As a currency, bitcoin fails as fees are too high and transactions too slow. The blockchain can only handle 7 transactions max. Bitcoin proponents mention the Lightning Network which is supposed to tackle these problems. From what I can see, the only use of the Lightning Network is to counter the argument about Bitcoin being slow and expensive, but, “you can use the lightning network”. I don’t believe this view and neither do a lot of proponents.

The argument switches to Bitcoin being a store of value. Easy to debunk this one as stores of value are not as volatile as bitcoin. Believe it or not, stores of value, store their value. You can’t have a store of value that loses half its value in a few months.

As Bitcoin has no utility, it can’t generate any return. For example, property pays rent, shares pay dividends, etc. Where does the value come from? Its new users coming into the system. Bitcoin needs to pay for the miners who validate all the transactions. They have high electricity costs as well as the costs of the hardware. Where does that money come from? It’s the money new users have put into the system. Where else could it come from?

How come it keeps rising?

Surely there can’t be that much new money going into the system? This is correct, there is something else going on. There is some money coming in from Tesla and Microstrategy but this is small compared to Tether. Tether is a stablecoin that has a peg of $1. Basically, they print Tethers and use that to buy bitcoin. This pushes up the price of bitcoin. Once this fraud is fully exposed then the whole thing will collapse. There is very little real demand for bitcoin. It’s mainly people gambling and a few true believers.

Get out while you can

In summary, if you have money in Crypto, you can’t afford to lose, then get it out. Maybe keep a bit in for entertainment purposes but be under no illusion, this is just gambling.

Resources – rather than reinvent the wheel, I’ll just link to others who have made similar arguments.

Yes, Bitcoin is a Ponzi A Re-Rebuttal – a thorough case for Bitcoin being a Ponzi.
Buttcoin: backed by gold, comedy gold! – great sub reddit mocking Bitcoin
Bitfinex’ed – Twitter account exposing Tether as one of the largest financial frauds in history

Here’s the introduction from Nassim Nicholas Taleb draft paper, Bitcoin, Currencies, and Bubbles

INTRODUCTION/ABSTRACT

This discussion applies quantitative finance methods and economic arguments to cryptocurrencies in general and bitcoin in particular —as there are about 10; 000 cryptocurrencies, we focus (unless otherwise specified) on the most discussed crypto of those that claim to hew to the original protocol [1] and the one with, by far, the largest market capitalization.

In its current version, in spite of the hype, bitcoin failed to satisfy the notion of “currency without government” (it proved to not even be a currency at all), can be neither a short or long term store of value (its expected value is no higher than 0), cannot operate as a reliable inflation hedge, and, worst of all, does not constitute, not even remotely, safe haven for one’s investments, shield against government tyranny, or tail protection vehicle for catastrophic episodes.

Furthermore, there appears to be an underlying conflation between the success of a payment mechanism (as decentralized mode of exchange), which so far has failed, and the speculative variations in the price of a zero-sum asset with massive negative externalities.

Going through monetary history, we also show how a true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services, how gold and silver lost their inflation hedge status during the Hunt brothers squeeze in the late 1970s and what would be required from a true inflation hedged store of value.

Can view his respomses on twitter. He doesn’t hold back with the replies

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