Cryptocurrency is a fraud, Ponzi and financial mania



UBS said there are a number of challenges that could trigger a crypto winter.

A growing number of factors suggest a "crypto winter" could be on its way, analysts at UBS have warned.

The case for bitcoin as a currency and inflation hedge is dwindling, and its tech has several flaws, they said.


Why bitcoin is worse than a Madoff-style Ponzi scheme

A Ponzi scheme is a zero-sum enterprise. But bitcoin is a negative-sum phenomenon that you can’t even pursue a claim against, argues Robert McCauley.



Bitcoin is off its all-time high of $69,000 set on November 9, 2021. It suffered a wrenching $12,000 flash crash over the first weekend in December, amid accounts of leveraged positions being closed out. And yet, even at the current price of $49,000, guests on financial TV news continue to tout it as the best-performing asset of the last N years, where N can be just about any number from one to ten. They also increasingly judge it as a credible investment in its own right.

This contradicts the longstanding sceptical view by many economists and others that what bitcoin really is, in effect, is a Ponzi scheme. Brazilian computer scientist Jorge Stolfi is one voice who has contended this. His view is based on the following observations:

Investors buy in the expectation of profits.

That expectation is sustained by the profits of those that cash out.

But there is no external source for those profits; they come entirely from new investments.

And the operators take away a large portion of the money.

All of this rings true true. But in calling bitcoin a Ponzi scheme, critics are arguably being too kind on two counts. First, bitcoin doesn’t have the same endgame as a Ponzi scheme. Second, it constitutes a deeply negative sum game from a broad social perspective.

On the first count, it’s worth assessing how it compares to the original scheme devised by Charles Ponzi. In 1920, Ponzi promised 50 per cent on a 45-day investment and managed to pay this to a number of investors. He suffered and managed to survive investor runs, until eventually the scheme collapsed less than a year into it.


In the largest and probably the longest running Ponzi scheme in history, Bernie Madoff paid returns of around one per cent a month. He offered to cash out his scheme’s participants, both the original sum “invested” and the “return” thereon. As a result, the scheme could and did suffer a run; the Great Financial Crisis of 2008 led to a cascade of redemptions by participants and the scheme’s collapse.

But the resolution of Madoff’s scheme has extended beyond its collapse on account of the remarkable and ongoing legal proceedings. These have outlived Madoff himself, who died in early 2021.

Many are unaware that a bankruptcy trustee, Irving H. Picard, has doggedly and successfully pursued those who took more money out of the scheme than they put in. He even managed to follow the money into offshore dollar accounts, litigating a controversial extraterritorial reach of US law all the way to the US Supreme Court. Of the $20bn in recognised original investments in the scheme (which the victims had been told had reached a value more than three times that sum), some $14bn, a striking 70 per cent, has been recovered and distributed. Claims of up to $1.6m are being fully repaid.

By contrast to investments with Madoff, Bitcoin is bought not as an income-earning asset but rather as a zero-coupon perpetual. In other words, it promises nothing as a running yield and never matures with a required terminal payment. It follows that it cannot suffer a run. The only way a holder of bitcoin can cash out is by a sale to someone else.

Bitcoin’s collapse would look very different to that of Ponzi’s or Madoff’s scheme. One possible trigger could be the collapse of a big so-called stablecoin, that is, ersatz US dollars that have sprung up to provide a cash leg for cryptocurrency transactions. These “unregulated money market funds” have been sold as dollar stand-ins with safe assets that match their outstanding liabilities. Given the lack of regulation and disclosure, it is not hard to imagine a big stablecoin “breaking the buck”, as occurred with a regulated money market fund that held Lehman paper in 2008. This could so disrupt the whole ecology of crypto that there could be no bids for bitcoin. The market might close indefinitely.


In this event, there would be no long-running legal effort to chase down those who cashed in their bitcoin early in order to redistribute their profits to those left holding bitcoins. Holders of bitcoin would have no claim on those who bought early and sold.

In its cashflow, bitcoin resembles 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). In any case, bitcoin makes no promises and cannot end as a Ponzi scheme ends. 

On the second count, another big difference between bitcoin and a Ponzi scheme is that the former is, from an aggregate or social standpoint, a negative sum game. To the extent that real resources are used up to make bitcoin run, it is costly in a way that Madoff’s two- or three-man operation was not. From the social standpoint, what Madoff took out of his scheme and finally consumed is a redistribution in a zero-sum game (the trustee sold his penthouse). Stolfi’s fourth observation above that “the operators take away a large portion of the money” lumps together Madoff’s take and bitcoin miners’ revenues, but these are very different in economic terms. 

With bitcoin and other cryptocurrencies, the game is to name the country whose electricity consumption equals that of all the puzzle-solvers (miners) who get to effect transactions and receive bitcoin in reward. Even if the electricity were priced to include its contribution to global warming (its “environmental externality”)—which presumably it mostly is not—this represents a real cost. 

How big a cost? At the beginning of 2021, Stolfi put the cumulative payments to bitcoin’s miners since 2009 at $15bn. At the then price of bitcoin, he put the increase in this sum at about $30m per day, which mostly pays for electricity.


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https://www.ft.com/content/83a14261-598d-4601-87fc-5dde528b33d0

At today’s higher bitcoin prices, the hole is growing faster. About 900 new bitcoin a day require most of $45m a day in electricity. Thus, the negative sum in the bitcoin game is in tens of billions of dollars and rising at over a billion dollars per month. If the price of bitcoin collapses to zero, the gains of those who sold would fall short of the losses of holders by this growing sum. To liken bitcoin to a Ponzi scheme or a pump-and-dump scheme, both basically redistributive, is to flatter the cryptocurrency system.

To conclude, an economic analysis of bitcoin must recognise its uniqueness in the history of manias. As an object of speculation, bitcoin is unprecedented in the degree to which there is no there there. This post-modern mania features big prices for entries on nobody’s spreadsheet. A zero-coupon perpetual has arrived not as a joke but as a trillion dollar asset. Unlike a Ponzi scheme, bitcoin cannot end in a run. 

In a crash, the holders of bitcoin will collectively have lost what they have paid the miners for their bitcoin. This sum may be not far from the sum originally invested with Madoff, after accounting for inflation. But bitcoin holders will have no one to pursue to recover this sum: it will simply have gone up in smoke, a social loss. The holders of bitcoin would then only wish it had been a Ponzi scheme.



Robert McCauley, a non-resident senior fellow at Boston University’s Global Development Policy Center and associate member of the Faculty of History at the University of Oxford. In this post McCauley argues that comparing bitcoin to a Ponzi scheme is unfair to Ponzi schemes.

https://www.ft.com/content/83a14261-598d-4601-87fc-5dde528b33d0




Bank of Russia Proposes Wide Ban on Cryptocurrency Use, Trade, Mining.


True to its hardline stance on decentralized digital money, the Central Bank of Russia is now pushing for a wide-ranging ban on crypto-related activities such as issuance, exchange, and mining. A consultation paper published by the regulator cites threats to financial stability and citizens’ wellbeing among the main reasons for the proposed restrictions.

Russia’s Central Bank Seeks Public Opinion on Restrictive Crypto Policy
The monetary authority of Russia is advocating a ban on an array of crypto activities in a report titled “Cryptocurrencies: Trends, Risks, Measures.” The document was published Thursday and the regulator awaits comments and suggestions on its contents until March 1. In the paper, the Central Bank of Russia (CBR) acknowledges the rapid growth of the global crypto market in the past year as well as the annual $5 billion in crypto transactions made by Russians.

At the same time, the bank points out that the growth in value is determined mainly by speculative demand which is forming a bubble, and that cryptocurrencies have the characteristics of a financial pyramid. Their spread, it says, poses threats to the stability of Russia’s financial system, monetary policy sovereignty, and the wellbeing of its citizens.

To reduce these threats and risk of illegal activity, Bank of Russia intends to collaborate with the Russian government and parliament in the coming months on a number of proposed legal amendments. These include the introduction of legal liability for violations of the ban on the use of crypto as a means of payment for goods and services.

The authority has often referred to cryptocurrencies like bitcoin and stablecoins as “monetary surrogates” that are prohibited under current Russian law. It now wants to ban their issuance and circulation in the Russian economy, including through digital asset exchanges and peer-to-peer platforms.

The central bank has also opposed crypto investments and intends to prohibit financial organizations from investing in cryptocurrencies and crypto-based financial instruments. It insists that the Russian financial infrastructure and intermediaries should not be used to facilitate cryptocurrency operations.
Mining cannot be ignored either, Bank of Russia says, as it increases the involvement of the population and the economy in the crypto market. The regulator believes the current scale and further spread of the activity bring significant risks for the environment and energy supply. Prohibition is the best solution, the CBR says.

Amid China’s crackdown on the industry, energy-rich Russia has become a mining hotspot. The minting of digital currencies is not only a profitable business but also an additional income source for many households that have access to subsidized electricity. Authorities in some regions have complained about rising energy consumption that strains power grids.

Bank of Russia plans to improve its monitoring of crypto operations. It intends to work closer with financial regulators in other jurisdictions as part of these efforts, especially in order to gather information about transactions conducted by Russian citizens. The bank’s proposal, however, does not envisage restrictions on owning cryptocurrency outside of Russia, as noted by the head of the central bank’s Financial Stability Department, Elizaveta Danilova.

In advance of presenting its view on crypto regulations in this report, the Central Bank of Russia stated last month that it sees no place for cryptocurrencies in the country’s financial market. Media reports have indicated that other Russian government institutions do not share its conservative position. A working group set up by the State Duma, the lower house of Russian parliament, is now preparing proposals to comprehensively regulate the Russian crypto space.
https://news.bitcoin.com/bank-of-russia-proposes-wide-ban-on-cryptocurrency-use-trade-mining/

Value of bitcoin is zero. Cryptotrading is gambling. Some will loose. Some will gain. The real beneficiaries are internet fraudsters, politicians, criminal gangs because crypto is perfect cover for money laundering.
In the future cryto would be regulated by most authorities.

Op can you compare the drop in value with drop in naira? This is the best time to buy.

I expected it, but not at this rate

January would have been perfect if not for bitcoin

Reading

......ghen ghen!

Motivational speakers will say "This is the best time to buy crypto".

100K USD or nothing

Buy the dip

Hàáà See gobe!

Buy the dip, buy the dip, but now that the dip is dipper for me, I'm done with crypto.

Cry
P= personally
T= To
O= organize yourself again.

Puekeyooo

Still not bad..

Buy the dips. This is an opportunity for all those who have interest investing in crypto. Even if it's as little as 5k please buy the dips

[s]

NLPoliceWoman:

Seun Mynd44 Justwise Dominique.
Rule 1.
Rule 2.

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best time to invest

The Dip is about to land me in DipShit

But we still here and we keep HODLing!

Oro ooooo! Iku Ti Dé!

Ha

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post=109565714:
Reading

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Always reading but never able to come to the knowledge of the truth.

What is my own:

Russia just banned Crypto currency:

Russia’s central bank has proposed outlawing all cryptocurrency operations in the country, one of the world’s biggest centers for mining digital tokens,” the Financial Times reports.

“Under the draft proposals, Russia would ban all cryptocurrency issuance and operations, stop banks from investing in cryptocurrencies, block exchanging crypto for traditional currency, and introduce legal liability for using crypto in purchases.”

Cryptocurrency no be your mate.

Bloodbath indeed....

Lost 25% of my funds, but no Lele

WGMI

That's why clitorcurrency is the future .
Always rising and barely "falls",unless the manager decide say work don tire her.

Buy the Dip

Yimu

Na wah

Omo see gobe

The I told you crew will soon arrive and start talking down on the crypto is the way to financial freedom crew.

In my opinion some people made money out of it and some are unfortunate to be holding the short end of the stick. Life happens.