You can criticize crypto currency’s for a lot but I still have never seen a good argument for it being a ponzi scheme. Can someone further this argument to one that wouldn't cover every investment asset?
If no speculators want to pay you for your stock, you'd have a stake in a stream of future profits or asset sales that company made simply from hanging onto it. If no speculators are interested in your bonds, the issuer is obliged to pay you coupon payments until it matures simply because you hang onto it. If nobody speculated on your property, there's a lot you can do with the land whilst hanging onto it. Even a dubious investment propped up by a lot of marketing hype like gold can make shiny things.
With Bitcoin, you have a cryptographic string. You can't make anything with it, it's not interesting to look at, it doesn't pay dividends or coupons and you almost certainly don't have any debt denominated in it. The only reason to hold it is the hope someone else will buy it from you for a greater price in future, and the only reason to believe they might want to do that is a claim that it's a "store of value" based entirely on the profits earlier holders made selling it to new ones.
It may not literally be a Ponzi scheme, but the dynamics are the same.
This discussion has no value if you were the only one participating. Facebook has no value if there are no "friends" to interact with.
My point is, the same kind of network effects that make social media valuable, are also inherent to cryptocurrencies like BTC. Metcalfe's law applies. Just like fiat currencies, actually.
So yes, new entrants are obviously important to achieve an increase in value (and therefore, price). But does that necessarily make it a Ponzi scheme? I don't think so, because a Ponzi is fraud, a scam, by definition. It needs to be done with the malicious intent of stealing the money of new entrants. That's not the case here. Of course new entrants might be convinced by speculators seeking profit to buy in when BTC is actually highly overvalued, but, the same applies to any other investment really (look at what's happening to TSLA).
It's not the "same kind of network effects" though.
It'd be the same kind of network effects if the only reason people had Facebook (or telecoms) accounts is because they thought someone else might buy their account off them for more money. And if a social network came along with that value proposition - "sure, it doesn't actually do anything but the fact I sold some to this other sucker at a higher price than I bought it proves it's a store of value" - nobody would hesitate to call it a pyramid scheme.
But it does do something and network effects have a tremendous positive impact on that utility: cryptocurrencies provide us platforms for decentralized finance. Make of that what you will; payments, providing liquidity, lending, storing value, whatever ... These trustless systems are what give cryptocurrency some intrinsic value which increases logarithmically with the number of participants in the network. I don't think this will disappear any time soon, on the contrary. Usage will increase as the technology develops and the world becomes ever more interconnected.
So you have the non-existent assets, bag holding, difficulty getting out and the promise of above average returns.
If I put my money into my saving account then I can get out at a clearly stated time, there is no expectation apart from very little interest and I am reasonably sure that the government will bail out the bank if the bank fails.
In between there are a spectrum of investment options, property is a good investment asset and you actually have a property made from things like bricks and glass as the 'store of wealth'. Yes it might be difficult to get out if there is a property crash. But it is not a ponzi scheme even if it has some characteristics of one.
But selling Bitcoin is _exactly_ an older investor being paid out by a newer investor.
IMO it's Bitcoin in combination with Tether that's the actual Ponzi. Unfortunately unlikely to unwind until and unless people start needing to redeem Tether rather than selling it on.
> IMO it's Bitcoin in combination with Tether that's the actual Ponzi.
Bingo.
The problem is, the big players have no interest in unwinding the scheme. As long as exchanges can wash trade USDT:BTC to drive the inflow of retail investment, things keep going.
What'll be interesting is if BTC continues to fall. I think the low $30k is a support level; if it crashes below that, I bet we're going to see more outflow from undercapitalized exchanges and things will adjust hard.
That is pretty much the accusation against tether. Most exchanges use it, so rather than the exchanges being knowingly undercapitalized, they are by virtue of using tether. Which is supposed to be 1=1 backed with the $. Which it isnt, and it is not clear how backed it actually is.
They always claimed it was backed 1:1 with the US dollar. Then they paid a fine to the NY AG because it was not backed 1:1, and as part of that they had to produce quarterly reports about how it was backed.
Dude I think you are kidding yourself. There is something not legit about Tether, or at least it feels that way. And neither Bitfinex or ifinex have done anything to help that through their misleading and sometimes outright lying, about Tether and its reserves.
