Notable economist and mathematician Nassim Nicholas Taleb got into crosshairs with the fans of Bitcoin after calling it a Ponzi scheme in May 2021, he is still on a Twitter blocking spree for stirring the hornet’s nest since then. Bitcoin Maxis are not one to mess with, especially with the strong conviction they exude. Even Nobel Prize-winning Economist Paul Krugman as recently as 2018 described bitcoin saying “it’s a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology.” Maciez Ceglowski, Pinboard founder after the horrific almost 50 percent drop in bitcoin in May described Bitcoin as a ”giant pyramid scheme” which caused a lot of hurt to many people in the end.
For context, the biggest Ponzi in history was run by the notorious Bernie Madoff valued at over $20 billion. Let’s even assume that Bitcoin qualifies to be called a Ponzi, then Satoshi Nakamoto should be the world’s most wanted man and should serve more than a thousand years imprisonment since Bernie Madoff was sentenced to 150 years in prison for running a 2 billion dollar Ponzi scheme. I say this because Bitcoin has touched more than $1.5 trillion in market capitalisation before crashing back below the trillion-dollar mark.
But let’s slow down a little and deconstruct this notion of bitcoin as a Ponzi scheme to see if these arguments hold water. Because a New York Times bestseller and author of Black Swan or even a Nobel Prize winner or any Ivy League academician called it so doesn’t automatically mean they are correct. Let’s judge their arguments based on merit.
We will do this by looking at the SEC’s characterisation of what a typical Ponzi Scheme is, a few of Satoshi’s writings, popular hedge fund managers like Ray Dalio, Tudor Jones etc., making moves to dodge the imminent inflation and how Bitcoin is solving the inflation problem and why nation-states should toe El Salvador’s paths by making it a legal tender for the exchange of goods and services within their borders.
The SEC and what a Ponzi Scheme looks like
In the landmark case, SEC vs Shavers necessitating the financial regulator to define all over what a Ponzi Scheme, SEC shared the common red flags of Ponzi schemes’ (Ponzi schemes disguised as a Bitcoin investment fund not exempted).
- High investment returns with little or no risks
- Overly consistent returns
- Unregistered investments
- Unlicensed sellers
- Secretive and/or complex strategies and fee structures
- No minimum investor qualifications
- Issues with paperwork
- Difficulty receiving payments
- It comes through someone with a shared affinity
But does Bitcoin really promise “high investment returns with little or no risks''? Well, not originally what Satoshi conceived. Scouring through the internet to check for Satoshi’s writings even after more than a decade of disappearing from the online space, you’d find out he barely ever talked about financial gain. Satoshi mostly wrote about technical aspects, about freedom, problems of the modern banking system, and so forth. In a nutshell, Satoshi always wrote like a programmer that he is, and only occasionally does his writings come off like an economist. But we can all agree that he never wrote like a salesman. Most Ponzi schemes are run by deviously talented salespeople like Madoff or the legendary Jordan Belfort, The Wolf of Wallstreet.
The few times Satoshi talked about the potential value or price of a bitcoin, he spoke only in regards to how the asset will be categorised. Satoshi always laid out his points in an academic style whether it would be inflationary or deflationary. On the subject matter of price or future value of a bitcoin, Satoshi made sure to never put out an absolute statement of fact. he expressed reasonable skepticism as to how the project could turn out. Don’t take my words for it, as we say in the blockchain space, “don’t trust but verify”, I implore that you do the same and see for yourself. All of Satoshi’s quotes are archived for anyone's perusal.
If we agree that Satoshi, a cypherpunk with a rational economist worldview rarely communicated on financial gains for those interacting with his innovation before vanishing out of space, we can look at another angle that most Ponzis thrive on; secrecy! The SEC says Ponzis are “Secretive and/or complex strategies and fee structures”, but not the case with Bitcoin. At the core of Bitcoin is the fact that it’s open-sourced. Anyone can run a full node and audit the entire blockchain and the entire money supply. It relies on no website, no critical data center, and no corporate structure. Does this sound like what Charles Ponzi or Bernie Madoff did? I think not. Radical transparency through an open ledger system that gives everyone smooth access to the network’s money supply and not a single upgrade possible on it without rock-solid social consensus is what Bitcoin brought into the space.
Except with the SEC’s case as an unregistered investment, bitcoin may then only be dragged for flouting the watchdog’s investment rule but only at its earliest stage. Twelve years after launch, it’s important to note that former SEC Chairman Jay Clayton is on record to have said that Bitcoin is not a security. By so, it means the king crypto has not flouted any securities laws. Why then do even academicians still regurgitate orthodox beliefs calling bitcoin a Ponzi Scheme? Well, the honey badger (Bitcoin network) doesn’t seem to care what they think. It’s just pure maths doing its thing.
Top CFOs favour BTC as an investment option
Will the top CFOs be rooting for a “giant Ponzi Scheme”? If Bitcoin is indeed a Ponzi scheme, then it appears at least 98 percent of CFOs expect their hedge fund to invest in cryptocurrencies, knowing fully well that BTC is the top choice for hedge fund managers like Ray Dalio Paul Tudor Jones etc. A recent study by Intertrust Global shows that 98% of CFOs are expecting their hedge fund to invest in Bitcoin and other cryptocurrency assets by 2026. Even Tudor Jones with a net worth above $7 billion recently said
“Bitcoin is math, and math has been around for thousands of years. I like the idea of investing in something that is reliable, consistent, honest, and 100% certain. BTC has appealed to me because it is a way to invest in certainty. I like Bitcoin as a portfolio diversifier.”
Does this sound like Ponzi? If it does, then Tudor Jones and Dalio are surely involved in the world’s largest Ponzi racket and should have the SEC swooning to throw them behind bars. By the way, it’s not just mere speculations, says Ray Dalio who owns some bitcoins.
Bitcoin, a hedge for inflation
One of the strong arguments Bitcoin proponents wave constantly in the face of Bitcoin critics and those averse to cryptocurrencies is the Bitcoin as a hedge against inflation point. Dalio in an interview in May said “Personally, I’d rather have bitcoin than a bond.” A hedge fund boss confident enough to go on record to say this should normally call for more investigation. At the macro level, the Federal Reserve's balance sheet is printing new all-time highs (more than $5 trillion injected into the economy through printing new money), typically, rates are low and the US dollar is declining with a revert back to equity volatility index (VIX). But Bitcoin money supply is consistent and constant. There can only ever be 21 million bitcoins mined, approximately 3.7 million of which are already lost forever, thereby reducing the future total supply even further.
As of April, inflation rate was 4.2% well above the Federal Reserve’s 2.2% target. Dalio sees a future where “cash is trash” with cash primarily being printed as a form of borrowing, driving the value even further lower and making a good case for assets like Bitcoin to serve as a safe haven.
El Salvador leading a new paradigm
Nation states like El Salvador already seem to be ahead of the curve, passing a Bitcoin Law effectively making bitcoin a legal tender and attracting the goodwill of the global cryptocurrency community. Besides that, other nations like Argentina, Zimbabwe and even Nigeria currently being plagued by massive currency devaluations should look no further in adopting the Bitcoin Standard. And yes, this is inevitable.
With all said, if you still think Bitcoin is a Ponzi scheme, then I think everyone should participate in it. Seems to me like a “good Ponzi scheme”.
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