Crypto: Bona Fide or a Ponzi Scheme?

The rise of cryptocurrency has been well documented, and none more so than Bitcoin reaching a value of almost $20,000 in February 2017. By early 2019, its value had crashed, much to the joy of industry critics (and short sellers!). But Bitcoin is back on an upward trajectory, so perhaps the good times are coming…

Mining cryptocurrency tokens and, by default, Bitcoin, has been likened to nothing more than a Ponzi scheme. Is this true?

The “intrinsic” value

The Merriam-Webster dictionary defines a pyramid scheme, or Ponzi scheme, as “a usually illegal operation in which participants pay to join and profit mainly from payments made by subsequent participants.”

Earlier this month, Peter Schiff, the CEO of Euro Pacific Capital known for his love of gold, told the RT-hosted financial show the Keiser Report, “I don’t think Bitcoin has anything in common with gold (or fiat currency). I mean, it tries to pretend to be gold, but I think it’s fool’s gold.” 

His argument was that it has “no intrinsic value,” thus making the pursuit of Bitcoin a Ponzi scheme. “By definition, money is the most liquid commodity, and Bitcoin has no intrinsic value other than the fact that people are willing to buy it because they think they can sell it to somebody else at a higher price. That’s not money, that’s a Ponzi scheme.” 

But this is something that Jon Walsh, an Associate Partner at Blockchain Rookies - a blockchain education and strategy consultancy, disagrees with. He says: Ponzi schemes are money shuffles. Bitcoin is a new potential asset class. There is no central party you’re paying in to, and there is no newer investors’ money paying off older ones.”

A growing ecosystem

Ultimately, some of technology’s brightest and best are jumping aboard the Blockchain and cryptocurrency bandwagon. Take Twitter’s former Head of Content, Christel Quek. In 2017, she launched the UK/Singapore based mobile and video token ecosystem – BOLT.

She believes that cryptocurrency, and Bitcoin in particular, has awakened since the winter freeze of 2018 and is now once again gaining international attention as it reaches $8,000 – a 55% increase on the last month alone. While it is now shedding owners as retail investors take their profit, this volatility is equally a sign of a renewed interest in the market.

She says, “This fluctuation is reminiscent of the 2017 market mayhem where investors reacted by the hour to swoop into the crypto market.”

More Bitcoin was traded on May 12th than any other day in history - with over USD 29 Billion. The BTC dominance in the market of cryptocurrencies is at an all-time high of 58.9% across the market cap of all cryptocurrencies.

“Given that the average Bitcoin dominance levels will settle between 45% - 51%, we believe the extra liquidity from Bitcoin's first major leg-up in 2019 will have a trickle-down effect in the coming weeks spurring the growth of alternative smaller-cap tokens. This is an important step to foster innovative projects in the space, and thereafter growing an ecosystem for more users to enjoy the benefits of the Blockchain at scale.”

The BOLT token, listed on Bitmax, the world's first 3rd-generation crypto-to-crypto exchange, is paired against USD and BTC. 

Cashing out

18 year-old Brandon Relph is one of the UKs leading entrepreneurs and recognised as the world’s leading youth business specialist.  For a year and a half, he was formally the youngest CEO in the UK. 

He believes that cryptocurrency is indeed a very high-risk investment, but ultimately not a Ponzi scheme. His viewpoint is: ”You can easily cash out your Bitcoin. Its returns (if any) are very inconsistent and the risk is high - almost the complete opposite of a Ponzi scheme” 

With Facebook about to launch its own coin in 2020, there is more investment in the eco-structure of cryptocurrency than any known Ponzi scheme. The question is whether to jump on board now in the hope of gaining the most benefits, or wait to test the waters. 

The keys to crypto: three key perspectives

Crypto certainly wants to be more than a Ponzi scheme. But between today’s speculators and mainstream adoption will come several seismic changes which every fintech entrepreneur should appreciate  

• Blockchain isn’t crypto. Digital currencies are only one part of the Blockchain ecosystem, and Blockchain will have countless further uses beyond currency. Equally, Blockchain ventures are often as over-valued as crypto ventures. Expect both technologies to mature and diverge.
• Regulation is coming. Crypto is currently largely unregulated. The potential for (and certainty of) new oversight regimes is the greatest threat to the status quo. Moving from the Wild West to Main Street always means upheaval.
• Beware the hack. Exchange rates are exciting, and attractive to BTC first-timers. But the high-risk, high-reward of Bitcoin trading is low-risk compared to the inherent weaknesses in digital security across the crypto IT ecosystem. From badly coded exchanges to scammer-created digital wallets, crypto is full of opportunities to lose everything.