Crypto Currency: Is it Ponzi Scheme or Market-Driven Bubble?



Well-known member
Jun 17, 2018
Many believe that all cryptocurrencies are a kind of Ponzi scheme because the participants connected to the system before others could have large volumes of cryptocoins with little effort, and now are likely to convert them into hard currency. The fact, that almost nothing is known about the Bitcoin founder, makes critics more confident. There are a lot of other dubious moments. Will the owners of Bitcoin and other cryptocurrencies spend their savings, knowing that –- just like in a Ponzi Sheme – tomorrow their wallet will cost more than yesterday? Can you trust the algorithm proposed by the unknown?

What is the probability of appearance of a cryptocurrency-user who owns the supercomputer equal to half of the power of network nodes and therefore able to fabricate false payments? And can his appearance (or something else) provoke mass dumping of crypto-cash, thereby bringing down the rate to zero?

On the other hand, a limited number of coins in a cryptocurrency does not allow to use such scheme. Bitcoin, the first and the most popular cryptocurrency, was not created for making a profit in such way. The bitcoin bubble of 2013 was the result of speculation rather than an organized scheme.

What is Ponzi Scheme?

If you think that Bitcoin is a Ponzi scheme, you don’t know the definition of a Ponzi scheme, don’t understand how Bitcoin works, or both. First let’s define the concepts. Ponzi Scheme is an investment scheme that provides incomes of earlier investors on account of the funds received from later investors.

There is common misconception that Ponzi scheme is a type of classical financial pyramid, but there are several subtle differences between these two schemes. Although both of these strategies are examples of fraudulent investment schemes that pretend to be serious organizations promising high returns in a short period of time, Ponzi scheme has a central figure that gets most of the money from fraud. In contrast, the pyramid scheme implies creating a network of investors who, in turn, actively attract new investors and usually receive interest on any investments made as a result of their efforts. That is in a classic pyramid scheme all cash flows are not tied to one person.

Obvious that Bitcoin is not a Ponzi scheme. Bitcoin is also obviously not a classical “pyramid scheme’’.

Market-Driven Bubbles

A recently published World Bank policy research mentions cryptocurrencies, namely Bitcoin, as a “naturally occurring Ponzi”, clarifying that it has nothing to do with deliberate Ponzi schemes, as some cryptocurrency critics have claimed.

In present days, most Ponzi schemes are not as obvious as in the past, being far more sophisticated and more difficult to identify, according to Kaushik Basu, World Bank economist and author of ‘Ponzis: The Science and Mystique of a Class of Financial Frauds’.

“The problem stems from the fact that we can have what Robert Shiller calls ‘naturally occurring Ponzis’, that is, financial bubbles that form without the manipulator’s baton but from finished natural market forces and with one person’s expectations feeding into another’s,” Basu said.

Basu goes on to present a hypothetical scenario: if people believe housing prices are bound to go up, they will “beg or borrow” to buy a house, thus creating more demand and contributing to prices spiralling out of control. When the bubble bursts, people who bought at the high end of the market take a hit.

Gold is another example, as it has witnessed numerous bubbles and crashes over the years. Basu notes that gold lost more value in two days of April 2014 than it did in thirty years, baffling both speculators and analysts.

Basu shows cryptocurrencies as an example of such a scenario:

“One of the most recent cases of bubbles occurred in the new ‘Bitcoin’ experiment. Bitcoin is a cryptocurrency; the main and original attraction of which is the low transactions cost associated with its use. One can buy bitcoin the way one can buy euros and trade freely with others having euros. Trouble started when people began speculating that the value of bitcoin would rise, thereby raising the demand for bitcoin and making the value-rise a self-fulfilling prophesy. In other words, what we witnessed recently in the bitcoin phenomenon fits the standard definition of a speculative bubble.”
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New member
Nov 14, 2018
I don't believe that cryptocurrencies in general are Ponzi schemes by nature. Now that said, there are some individual ones who are, and I've read in the news about people being convinced of running cryptocurrency Ponzi schemes.
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New member
Nov 14, 2018
This is the first time I am hearing that particular theory. I am not sure how feasible it is, but then again, I've heard wilder conspiracy theories. Do you believe that's what happened?

Shon Maykel

Active member
Oct 9, 2019
I don't believe that cryptocurrencies in general are Ponzi schemes by nature. Now that said, there are some individual ones who are, and I've read in the news about people being convinced of running cryptocurrency Ponzi schemes.
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