Don’t Invest in Bitcoin or Other Cryptos
They are all pyramid schemes
It may now appear tempting to buy Bitcoin and other cryptocurrencies. PLEASE DON’T
1. Bitcoin is a Ponzi Scheme or Pyramid Scheme or Money-chain scheme (whatever), where one buys something totally or nearly useless, hoping that a greater fool would later buy that for a higher price
2. There is no known utility for Bitcoin that cannot be realized using much cheaper and efficient methods
3. Blockchain is a technology with great promise and applications. Blockchain applications can operate without today’s cryptocurrencies
4. Owning bitcoin may be unethical. Over 75% of crypto merchant transactions are illegal and cryptocurrencies have spwaned the ransomware industry
What is the outlook for Bitcoin and other Cryptocurrencies?
The BEST POSSIBLE outcome of a Pyramid scheme is that the underlying good becomes a store of value upon late discovery of a utility for the good. One such example is Gold that has gained a store of value status because in honor driven societies like India, families hoard Gold to sustain and grow their honor position in the society. Indians have hoarded around $1 trillion worth of Gold that has given Gold its utility as a store of value.
Could it then be possible that bitcoin would achieve the status of value store? It may
Could it then be possible that bitcoin price would bounce back to $100K per BTC? Yes, possible
Could it then be possible that bitcoin price would bounce back to $1M per BTC? Yes, possible
Could it also be possible that bitcoin price would drop dead to zero in the next 24 hours? Yes, possible
It is also equally possible that bitcoin price would drop dead to zero in the next 24 hours
At these odds, I would rather put my money on a BlackJack table at a Vegas casino rather than in cryptocurrencies, for a more predictable return.
Why has my financial adviser never told me this?
A smart financial advisor would never advise clients against buying cryptocurrencies since ponzi schemes can last for decades. If crypto prices bounce back, a client who has followed the advise could drop the financial advisor’s services. So a smart financial advisor would rather advise “not to invest no more than 1–2% of your assets in high risk assets such as cryptos” (rather than telling not to invest at all)
Aren’t stocks (equity) also a Pyramid scheme?
No. When you buy equity in a company, you are investing in the future cash flow returns from that company in the form of dividends or stock buybacks. Such cash flows are generated by ADDING VALUE in the form of goods and services.
Pyramid schemes may also be constructured using stocks. A way to identify such pyramid schemes is to ask — What is the problem that the company’s products or services solve? If the answer is none, then it’s a pyramid scheme.
Want to know more? Looking for a detailed read? Go to — Lure of the Crypto Succubus
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For further reading
- Wall Street Journal — What Is Cryptocurrency, and How Does It Work?
- Wall Street Journal — Cryptocurrency Has Yet to Make the World a Better Place
- Bloomberg — Don’t Call Bitcoin a Bubble. It’s an Epidemic
- Benzinga — Dogecoin Co-Creator Says 99.9% Of Crypto Market Is Driven By ‘Greater Fool Theory’
- New York Times — Technobabble, Libertarian Derp and Bitcoin
- Wall Street Journal — Yes, Bitcoin Is Useless. Many Will Say: So What?
- Wall Street Journal — Bitcoin’s ‘One Percent’ Controls Lion’s Share of the Cryptocurrency’s Wealth
- Bloomberg — NYC, Miami Seen Facing ‘Ponzi Scheme’ Risks With Crypto Push
- Financial Times — Why bitcoin is worse than a Madoff-style Ponzi scheme
Disclaimer: This is not any form of financial advice and should not be construed as such. Please contact your financial advisor before making investment decisions.