Are Cryptocurrencies Like Ponzi Schemes? Some say Yes, others say No


A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Wikipedia


A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi schemes are named after Charles Ponzi. In the 1920s, Ponzi promised investors a 50% return within a few months for what he claimed was an investment in international mail coupons. Ponzi used funds from new investors to pay fake “returns” to earlier investors.

Ponzi scheme organizers often promise high returns with little or no risk. Instead, they use money from new investors to pay earlier investors and may steal some of the money for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.



Are Cryptocurrencies Really Like Ponzi Schemes? Here’s What Experts Have To Say

RBI deputy governor T. Rabi Sankar may have called cryptocurrencies Ponzi schemes but crypto experts say that apart from bad players, cryptocurrencies are legitimate entities.

Harsh Kumar 

Updated: 17 Feb 2022 11:39 am

While addressing the Indian Banks’ Association on Monday, February 14, Reserve Bank of India (RBI) deputy governor T. Rabi Sankar said that cryptocurrencies are akin to Ponzi schemes or even worse, and banning them is the most sensible option for India. 

“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows; they have no intrinsic value; that they are akin to Ponzi schemes, and may be even be worse,” he said in a speech. 

Are Cryptocurrencies Like Ponzi Schemes?  

Some experts agree that there are cryptocurrencies that work like Ponzi schemes. “When it comes to crypto products, there are many products with projects that are trying to work like Ponzi schemes. It’s spread across the world but is much more popular in countries such as Malaysia and Indonesia. Crypto is used as a way of payment because it’s easier and, by using crypto, they can open the entire Ponzi scheme to the whole world instead of being restricted to a specific country or region,” says Sathvik Vishwanath, co-founder and CEO, Unocoin, a crypto exchange. 

Cryptocurrencies are, in fact, worse than Ponzi schemes, says Gaurav Mehta, founder of Catax, an online crypto tax and auditing platform. “It is a more complicated asset than a Ponzi scheme, and it is worse since it not only encourages evangelism but also undermines nation states by interfering in the currency system. When the tulip mania passed, people were at least left with tulips to smell; when Bitcoin passes, they (investors) would be left with nothing,” he said.  

Other don’t agree. A Ponzi scheme promises high returns with minimal risk, whereas crypto trading is quite volatile due to market conditions, regulator challenges, and other factors, which gives investors an opportunity to earn high returns but while they face high risk.   

“Clubbing crypto assets with Ponzi schemes is grossly unfair. Multi-level marketing schemes and chit fund schemes that promise steep returns would qualify as Ponzi schemes,” says Sharat Chandra, vice-president, research and strategy, EarthID, a global decentralized self-sovereign identity management platform. 

As cryptocurrencies fight for legitimacy, bad players make the task more difficult, especially as the commentary around cryptocurrencies has moved beyond payments (legal tender) use cases to aspects such as asset tokenisation, metaverse, gaming and web3.0.



Why Bitcoin is Not a Ponzi Scheme: Point by Point

Posted 1/11/21 by Lyn Alden

One of the concerns I’ve seen aimed at Bitcoin is the claim that it’s a Ponzi scheme. The argument suggests that because the Bitcoin network is contin­u­ally reliant on new people buying in, that eventu­ally it will collapse in price as new buyers are exhausted.

So, this article takes a serious look at the concern by comparing and contrasting Bitcoin to systems that have Ponzi-like charac­ter­is­tics, to see if the claim holds up.

The short version is that Bitcoin does not meet the defin­i­tion of a Ponzi scheme in either narrow or broad scope, but let’s dive in to see why that’s the case.

Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp specu­la­tion scheme.”

They further go on to list red flags to look out for:

“Many Ponzi schemes share common charac­ter­is­tics. Look for these warning signs:

High returns with little or no risk. Every invest­ment carries some degree of risk, and invest­ments yielding higher returns typically involve more risk. Be highly suspi­cious of any “guaran­teed” invest­ment opportunity.

Overly consis­tent returns. Invest­ments tend to go up and down over time. Be skeptical about an invest­ment that regularly gener­ates positive returns regard­less of overall market conditions.

Unreg­is­tered invest­ments. Ponzi schemes typically involve invest­ments that are not regis­tered with the SEC or with state regula­tors. Regis­tra­tion is impor­tant because it provides investors with access to infor­ma­tion about the company’s manage­ment, products, services, and finances.

Unlicensed sellers. Federal and state securi­ties laws require invest­ment profes­sionals and firms to be licensed or regis­tered. Most Ponzi schemes involve unlicensed individ­uals or unreg­is­tered firms.

Secre­tive, complex strate­gies. Avoid invest­ments if you don’t under­stand them or can’t get complete infor­ma­tion about them.

Issues with paper­work. Account state­ment errors may be a sign that funds are not being invested as promised.

Diffi­culty receiving payments. Be suspi­cious if you don’t receive a payment or have diffi­culty cashing out. Ponzi scheme promoters sometimes try to prevent partic­i­pants from cashing out by offering even higher returns for staying put.”

I think that’s a great set of infor­ma­tion to work with. We can see how many of those attrib­utes, if any, Bitcoin has.

It’s a long article. Read it here:



Bitcoin: Delusions of money

By Steven J. Vaughan-Nichols

Computerworld | Feb 1, 2022 3:00 am PST

Bitcoin is more broadly accepted than ever, but that doesn’t mean it’s not still a scam.

Bitcoin is more popular than ever. Businesses such as AT&T, Microsoft, Visa, and PayPal all accept payment by Bitcoin and even small companies are getting into cryptocurrency. According to an HSB survey, one-third of US small and medium-sized businesses accept cryptocurrency as payment. If you invest in Bitcoin, I’m sure this is great news. To me, it’s more proof that a sucker’s born every minute.

Why the Bitcoin hate? Because it’s a con — always has been, always will be. Oh, it sounds good enough. Bitcoin is a decentralized digital currency that you can buy, sell, and exchange directly via blockchain-secured ledgers, instead of relying on an intermediary such as a bank with fiat currency. It uses cryptographic proof instead of trust in a government. Like fiat money, though, at day’s end, its value is in the eyes of its owners.

So, what’s wrong with that? As Robert McCauley, a non-resident senior fellow at Boston University’s Global Development Policy Center, recently explained, comparing Bitcoin to a Ponzi scheme is being too kind to Ponzi schemes.

True, unlike Ponzi or Bernie Madoff, “Bitcoin is bought not as an income-earning asset but rather as a zero-coupon perpetual.” In other words, no one promises you a return for holding Bitcoin, its value comes from selling Bitcoins to others. But what happens the day that no one buys Bitcoins at any price

There is no bottom. Bitcoin could become valueless overnight,

As McCauley explains, the Bitcoin endgame wouldn’t be like Madoff’s, but instead would look more like “a penny-stock pump-and-dump scheme more than a Ponzi scheme. In a pump-and-dump scheme, traders acquire basically worthless stock, talk it up and perhaps trade it among themselves at rising prices before unloading it on to those drawn in by the chatter and the price action. Like the pump-and-dump scheme, Bitcoin taps into the pure desire for capital gains. Buyers cannot stand the sight of friends getting rich overnight: they suffer an acute fear of missing out (FOMO).”

Does that sound familiar? If you invest in Bitcoin, it should. Bitcoin’s value depends entirely on hype and hope. Lose those and it loses its value.

The cryptocurrency has been hit by many crashes, most recently in November, when it dropped to less than half its value. As I write this, it’s back up again, but how long will that last? Will it ever reach its all-time high of $68,991? Who knows?

What I do know is that as with any money scam, if you’re in early and get out, you’ll make money. For Bitcoin, if you invested in 2017 or earlier, congratulations, if you got out, or get out soon, you’ll make “real” money. After 2017? Not so much. 

It was never meant to be this way. Satoshi Nakamoto, the mysterious Bitcoin inventor, meant it as a medium for daily transactions and a way to circumvent traditional banking infrastructure after the 2007-08 financial collapse.

That’s not how it’s worked out. Today, while you can use Bitcoin for purchases, its real use is a high-risk, high-reward investment gamble. 

If that’s all there was to it, I wouldn’t mind that much. People bet on the Super Bowl, horses, poker, so why not Bitcoin?

Finally, as my buddy David Gewirtz points out, you can lose your shirt with Bitcoin. In the long run, I expect all but a few to lose their shirts to Bitcoins and other cryptocurrencies.

I know that’s not a popular view, but seriously people, take a deep breath if you’re already into cryptocurrency and think about what I’ve said. It might just save you a ton of real money.


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