Jump to content

Bitcoin, Another Ponzi Scheme Or Is It For Real?


forcebwithu
 Share

Recommended Posts

Had a discussion with a friend last night about the recent rise in the price of Bitcoin. He mad the case that Bitcoin was as real as fiat money. I pointed out one big difference between Bitcoin and printed money is the printed money is backed by the assets of the country doing the printing, and also to some extent how big their military is. Bitcoin on the other hand is nothing more than a creation of a computer algorithm, with no tangible assets backing it.

There's also another troublesome aspect of Bitcoin. It's unregulated and the value is prone to manipulation. This article makes the case of why the the price is so volatile.
COIN CONUNDRUM Fears Bitcoin ‘whales’ could trigger crash with just 2,500 people controlling nearly HALF of market

So are there any true believers in Bitcoin out there that can make a case as to why it's nothing more than a Ponzi scheme?

Crypto crash: After nearing record, Bitcoin plunges | Crypto News | Al  Jazeera

Link to comment
Share on other sites

16 minutes ago, forcebwithu said:

Had a discussion with a friend last night about the recent rise in the price of Bitcoin. He mad the case that Bitcoin was as real as fiat money. I pointed out one big difference between Bitcoin and printed money is the printed money is backed by the assets of the country doing the printing, and also to some extent how big their military is. Bitcoin on the other hand is nothing more than a creation of a computer algorithm, with no tangible assets backing it.

There's also another troublesome aspect of Bitcoin. It's unregulated and the value is prone to manipulation. This article makes the case of why the the price is so volatile.
COIN CONUNDRUM Fears Bitcoin ‘whales’ could trigger crash with just 2,500 people controlling nearly HALF of market

So are there any true believers in Bitcoin out there that can make a case as to why it's nothing more than a Ponzi scheme?

Crypto crash: After nearing record, Bitcoin plunges | Crypto News | Al  Jazeera

Ponzi Scheme? IMHO, it doesen't come close to one as nobody is offering to pay you back with a profit after a period of time.

Like all fiat currency's, it has no intrinsic value, as it's only worth what a willing seller and a willing buyer agree to, with no governmental interference or control, which is a plus, not a negative.

As for manipulation, there is no bigger manipulator than Governments, who are committed to gradually inflating currency's until they run out of zero's.

 

Link to comment
Share on other sites

Whatever it is, it is probably personally my biggest missed investment opportunity. Just before Christmas of 2013, I was driving across Canada to spend some time with the family. I was somewhere about 15 hours west of Montreal, there’s only one town every 50 miles or so. Have the radio on, and there are no FM music stations on. So I’m stuck listening to some AM news, and there were some good documentaries playing. One was of this new radical payment thing........BItcoin. Never gave it a second thought, and I’m sure I would not even have known where to buy some. I was swimming in cash at the time, the cab business was very good. Didn’t know what to do with my money TBH, and made many poor decisions between then and now. Everything with money is risk versus reward, and with that in mind, $1,000 or even $10,000 was nothing for me at the time, and would be worth several million $ today......I can’t keep up because BTC keeps breaking records, and our dollar got weaker, which made it return even more. 
 
People can say it’s a Ponzi scheme, it’s only being used by criminals on the DarkWeb, etc......but for me, it will shall forever remain “the one that got away”. Just based on how cheap it was when I first heard about it

Oh and after a good night’s sleep, I found out Vito Rizzuto, the Godfather of the Canadian mob, had passed away.....funny how we remember these things 

Edited by Golfingboy
Link to comment
Share on other sites

2 hours ago, Golfingboy said:

This shows almost 100x growth......and that’s not even going back to its beginnings in 2010, when they were a dime apiece!

Actually, in the beginnings, the price was less than a penny. One of the early transactions was someone offered 10,000 coins for a Pizza delivery (about $20US$)

  • Great Info 1
Link to comment
Share on other sites

3 hours ago, Mrmango said:

Ponzi Scheme? IMHO, it doesen't come close to one as nobody is offering to pay you back with a profit after a period of time.

Like all fiat currency's, it has no intrinsic value, as it's only worth what a willing seller and a willing buyer agree to, with no governmental interference or control, which is a plus, not a negative.

As for manipulation, there is no bigger manipulator than Governments, who are committed to gradually inflating currency's until they run out of zero's.

Ponzi was a poor choice of words on my part. Perhaps a better word would have been bubble.

What I fail to see or understand with Bitcoin is what is its utility. I know people can use it to purchase goods and services, but your post about the purchase of a pizza using Bitcoin is a good example why people would be hesitant to use it as currency. Eleven years later the coin that was spent to buy a $200 pizza is now worth $332 million.

 

Link to comment
Share on other sites

4 hours ago, Mrmango said:

Like all fiat currency's, it has no intrinsic value, as it's only worth what a willing seller and a willing buyer agree to, with no governmental interference or control, which is a plus, not a negative.

Governments have been printing money wholesale, particularly during the pandemic. That is why there is a worry that the USD and other fiat currencies might collapse.

You can't do that with Bitcoin, which is why people have been buying into it in recent months. 

In years gone by, there would have been a spike in the gold price. However, it seems the big US banks are able to manipulate the gold price, plus China is believed to be sitting on a very large, undisclosed quantity of it, so it is not in favour. 

Link to comment
Share on other sites

2 hours ago, Bazle said:

Governments have been printing money wholesale, particularly during the pandemic. That is why there is a worry that the USD and other fiat currencies might collapse.

You can't do that with Bitcoin, which is why people have been buying into it in recent months. 

In years gone by, there would have been a spike in the gold price. However, it seems the big US banks are able to manipulate the gold price, plus China is believed to be sitting on a very large, undisclosed quantity of it, so it is not in favour. 

Or not....lol...

https://news.bitcoin.com/83-tons-fake-gold-bars-china-scandal/#:~:text=One of China's largest gold,from 14 Chinese financial institutions.

Link to comment
Share on other sites

Chart lifted from Shares Magazine, from BOA research- the graph's scale accentuates the rise but you get the point(there's an obvious error on the  X axis too)

image.png

Don't feel Bitcoin is a scam but I'm sure digital currencies will continue to be an attractive vehicle for purveyors of Ponzi Schemes, OneCoin being an early example

https://www.bbc.co.uk/news/stories-50435014

I too can remember when the Beer Garden offered the option to pay in BTC, and not taking it seriously🤑

Am confident if I ever making to LOS again, someone, most likely a Scouser will offer me a once in a lifetime crypto investment.

Edited by Lemondropkid
  • Haha 1
Link to comment
Share on other sites

8 hours ago, Bazle said:

Governments have been printing money wholesale, particularly during the pandemic. That is why there is a worry that the USD and other fiat currencies might collapse

That is one possibility, but it is certain that Governments will gradually inflate their currency as they have since they changed it to fiat currency. The US Fed has a goal of 2% inflation, which means that in 10 years the currency will be worth half what it is today.

Link to comment
Share on other sites

  • 1 year later...

For those that might believe cryptocurrency is a good means to store wealth...

In less than a week, Sam Bankman-Fried’s $16 billion fortune evaporated

Sam Bankman-Fried woke up on Monday still a billionaire, even as his cryptocurrency empire was beginning to unravel. By Friday, his fortune was completely wiped out.

Based on net worth calculations by Bloomberg, Bankman-Fried was worth about $16 billion at the start of the week. But as his crypto exchange, FTX, collapsed, the value of his assets was reduced to zero in what Bloomberg called “one of history’s greatest-ever destructions of wealth.”
...

  • Great Info 1
  • Surprised 2
Link to comment
Share on other sites

28 minutes ago, forcebwithu said:

For those that might believe cryptocurrency is a good means to store wealth...

In less than a week, Sam Bankman-Fried’s $16 billion fortune evaporated

Sam Bankman-Fried woke up on Monday still a billionaire, even as his cryptocurrency empire was beginning to unravel. By Friday, his fortune was completely wiped out.

Based on net worth calculations by Bloomberg, Bankman-Fried was worth about $16 billion at the start of the week. But as his crypto exchange, FTX, collapsed, the value of his assets was reduced to zero in what Bloomberg called “one of history’s greatest-ever destructions of wealth.”
...

Crazy story, but anyone who gets to that level must cash out or lower exposure at some point. 
 

For all my education and lessons learned, I’ve said it before….I don’t think you even need a great line of work to be wealthy. Start young, be happy with 10-12% in stocks, live below your means. This clip sums it up perfectly, forget a $200,000 degree from Harvard, many guys would be further ahead just by heeding Goodman’s advice 

 

  • Thumbs Up 1
Link to comment
Share on other sites

15 hours ago, forcebwithu said:

For those that might believe cryptocurrency is a good means to store wealth...

Count me as one of them,

I bought a few coins several years ago and planned to hold them for at least a decade. I did cash out some a year ago to buy a house in Vegas, but I have no plans to sell the rest.

Link to comment
Share on other sites

19 hours ago, forcebwithu said:

For those that might believe cryptocurrency is a good means to store wealth...

In less than a week, Sam Bankman-Fried’s $16 billion fortune evaporated

Sam Bankman-Fried woke up on Monday still a billionaire, even as his cryptocurrency empire was beginning to unravel. By Friday, his fortune was completely wiped out.

Based on net worth calculations by Bloomberg, Bankman-Fried was worth about $16 billion at the start of the week. But as his crypto exchange, FTX, collapsed, the value of his assets was reduced to zero in what Bloomberg called “one of history’s greatest-ever destructions of wealth.”
...

Easy come easy go 😅 either that attitude or jump of a high floor,ironic name bankman- fried yes he certainly did..hmm 

Link to comment
Share on other sites

3 hours ago, Mrmango said:

Lets be real - The price of Bitcoin has dropped about 10% over the last few days, and nobody with a net worth of 16 billion is going broke if that is his only investment.

Exactly, sounds like some very high leverage plays, probably explains how he got to $16B in the first place. That was my mistake several times, but especially 2008, playing on margin. I’d have maybe $50-60K but play with 200-220, without using options, just buying quality stocks, some days I’d have $6–7K more when I woke up just making 2%. Was in Phoenix playing golf and having a great time. Didn’t feel like being back home in the cold making $20/hour.  When the bottom fell out of the banks, took a month or less for me to lose it all. 
 

That being said, as long as you can cover your loan deficiency while the stock is down, you will make good money long term. But we all get greedy eventually, just like the card tables, no one likes to cash out early and walk away….

Edited by Golfingboy
Link to comment
Share on other sites

1 minute ago, Golfingboy said:

Exactly, sounds like some very high leverage plays, probably explains how he got to $16B in the first place

From what little I have read, he did have some very successful investments early on, which generated capital to start a Bitcoin exchange/broker. He probably bought coin in the early days when it was almost free, so having coin go up to $68,000 US$ would generate billions by itself.

He had apparently several hundred ventures going, which in itself will guarantee doom IMHO.  

  • Thumbs Up 1
Link to comment
Share on other sites

Crypto and the end of the beginning

Alan Kohler

On Friday, a day after Elon Musk warned that bankruptcy was not out of the question for Twitter, Sam (‘SBF’) Bankman-Fried’s FTX actually did go into Chapter 11 bankruptcy.

Never heard of FTX or SBF? That’s understandable.

FTX is, or was, a crypto exchange, buying and selling cryptocurrencies, and 14 years and one month after the invention of Bitcoin, crypto remains in the shadows of finance.

When FTX ran out of money a couple of weeks ago, SBF had to turn to his competitor, Changpeng Zhao, founder of Binance (and known as CZ of course), because there was no appetite among mainstream financiers to bail out a crypto exchange.

Last week, CZ walked away. SBF tried to raise $US8 billion but failed because no one outside crypto-land wanted to touch it. So he put the company into Chapter 11, quit as CEO, called in the guy who handled the Enron collapse, and said goodbye to his own $US24 billion personal (paper) fortune. It’s probably the largest money bonfire in history.

Meanwhile, the world of big tech has also had a rocky couple of weeks.


Rocky road: The share price of Meta dropped 25 per cent in one day.
In late October, the share prices of Meta (owner of Facebook and Instagram), Alphabet (owner of Google) and Amazon all fell 20 to 25 per cent in a few days (Meta did it one day), as disappointing quarterly earnings were announced.

Then last Thursday, after US inflation fell and lowered expectations about interest rates, they all zoomed higher and propelled the US stockmarket to its best day in two years.

Actually, these stocks have been falling for exactly 12 months, in tandem with Bitcoin and the other cryptos.

The so-called FAANG index, which includes Alphabet, Meta, Amazon, Netflix and Apple, peaked on November 12, 2021, and has since declined 41 per cent. Meta has fallen 75 per cent because of CEO Mark Zuckerberg’s so-far ill-fated adventure in the metaverse.

World’s third/fourth industrial revolution
The decline has been partly due to rising interest rates, but it’s also due to the fact that we’re at the end of the beginning of the fourth industrial revolution.

The question of which is third and which is the fourth is a bit messy.

The third industrial revolution (digital) tends to merge into the fourth (automation), so it might be better to talk about them as one thing.

Whatever – we’re now moving from its second price bubble into something more boring and normal.

The first bubble was the late 1990s, ending in the March 2000 bust.


But over the following decade, the arrival of smartphones, social media, online shopping, video streaming and above all, Google’s internet search tools, kindled a new bubble, this time of real earnings, not just valuations (although valuations did take off as well because central banks slashed interest rates after the GFC and then took them to zero in the pandemic).

But the companies did make colossal fortunes because they had great products.

Apple’s iPhone, introduced by Steve Jobs at the Macworld conference of 2007, is the greatest consumer product of all time – even greater, I submit, than the car. Everybody now has a smartphone and uses it for everything. We simply can’t do without it.

Google is a daily miracle. You type anything into the search field and either it, or Wikipedia with its 6.5 million articles, gives you the answer or where to find it. I am constantly amazed by Google, never get tired of it.

Online shopping (Amazon) and video streaming (Netflix) are incredibly disruptive and have really only just begun to transform the way we live, and work, with Zoom and Microsoft Teams.

Microsoft’s programs have been with us for so long we take them for granted, but Word and Excel are also a little bit miraculous.

Social media is more troubling, which is a whole other subject, but it’s still a great product, just as disruptive and just as much a part of the third/fourth industrial revolution.

The number of social media users (Facebook, Instagram, Twitter, WhatsApp, TikTok) add up to the population of the planet (7.5 billion), although there is plenty of double counting since most people are using more than one.

All of these businesses are now settling into becoming regulated utilities, making regulated utility profits.

In other words, it’s the end of the beginning of this industrial revolution, and investors are seeing that.

In his wonderful book The Great Transformation, published in 1944, Karl Polanyi wrote: “At the heart of the Industrial Revolution of the eighteenth century there was an almost miraculous improvement in the tools of production, which was accompanied by a catastrophic dislocation of the lives of the common people.”

Something similar is happening this time – definitely miraculous improvement in tools, but perhaps not “catastrophic dislocation”, although the impact of social media, and the Chinese government-owned TikTok in particular, is close to being catastrophic, in my view.

The dislocation in the 18th century that Polanyi wrote about led to Marxism and what we now call industrial relations, or labour regulation – that is, controlling how companies pay and treat their employees.

And the colossal profits of early steam, electricity, railway and steel businesses were eventually competed and regulated away.

That is now starting to happen with the businesses behind the third/fourth industrial revolution.

The big money is no longer available, because the “common people” have the vote (they didn’t in the first industrial revolution), and they won’t stand for it.

The future of crypto
Back to crypto: Is it a scam? Well, some of it is.

Here’s what SBF said in an interview with Bloomberg in April: “And now all of a sudden everyone’s like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box.”

A box that has value because people put money in it is the definition of a Ponzi scheme.

Will FTX’s collapse mean the end of crypto? Well, some of the 3000 or so cryptocurrencies, or at least it should.

Bitcoin has had another 75 per cent bust over 12 months like it did in 2017; it recovered then and might again, but it’s becoming clear now that Bitcoin will probably never become a form of money – that is, a widely accepted medium of exchange – at least not for anyone except criminals and hackers.

Its only legitimate use, and the reason it still costs more than $US16,000 to buy one, is as a store of value, brought about by the strict limit on the number that can ever be created.

But that’s undermined by the way it can be divided into an apparently limitless number of bits, and anyway to succeed it needs another use, not just store of value. The world might discover at some point that Bitcoin has no use, or value, at all.

It’s possible that the second-biggest crypto, Ethereum, will last because it is the platform for decentralised finance, or defi, which have a permanent place in finance generally, but it will be a smaller place than its promoters claimed and its enthusiasts think, a bit like buy now, pay later. It’s a real business, but not much of one, and not enough of one for all those crowding into it.

For a while it looked like crypto and Bitcoin would kick the whole tech party along and, along with the metaverse, extend the third/fourth industrial revolution into a fifth including blockchain and virtual reality.

Maybe that will still happen eventually, but that future is looking less likely today after the misfortunes of SBF, and the 75 per cent crashes in the prices of Meta and Bitcoin.

Alan Kohler writes twice a week for The New Daily. He is also founder of Eureka Report and finance presenter on ABC news

https://thenewdaily.com.au/finance/2022/11/14/crypto-revolution-alan-kohler/

 

 

Link to comment
Share on other sites

 Share

×
×
  • Create New...