Is bitcoin a Ponzi scheme?

by H.Thirukkumaran

What is a Ponzi scheme?

Since this article is about a financial product which is yet to be regulated by government let us take the definition of Ponzi schema from US Securities and Exchange Commission.

 According to SEC existing investors are paid by new investors and the scheme has little or legitimate earnings. In simple terms you don’t generate any returns on the investment of early investors and pay them with money from later investors.

Which is NOT a Ponzi Scheme?

When I look at lot of institutions, social schemes and companies I feel that most of them are running the Ponzi scheme. Let us take few cases as listed below.

US Social Security Scheme

The US Social Security Scheme is a Ponzi Scheme. As per some projection the US Social Security Fund will be depleted by 2034. If you read this article you can understand that the money current tax payers are paying is actually being used to pay the current retirees and not saved for future. This should clearly tell the message that young people are now paying for the old people in US social security scheme and there is no guarantee that the current generation will receive the social security money when they retire. Is this a Ponzi scheme?

UK National Health Service

There is a widespread belief that UK’s NHS is also a Ponzi scheme financially but it is the backbone of UK’s wellness. I know from first hand how having a scheme like NHS will relieve the families of the financial stress but it is a big burden to the country. Lot of politicians in UK are advocating to privatize NHS which is a terrible idea. NHS is also a Ponzi scheme like US social security and some UK politicians admit it.

Stock Markets, Investment Banks and Bailouts

 If the investment banks and insurance companies have worked with ethics in mind then why should they be bailed out using public funds. They ran Ponzi scheme. The early investors in a company know that they need to run a Ponzi schema to get their money back. Look at the trends of companies being listed in the stock exchange these days. Companies are overvalued and so very little or no profit at all but still these investors force the company to be listed and then socialize their losses and come out. They need new investors to bail them out and this happens repeatedly in stock market. Insurance is the same case, lot of young people in the network make the business profitable but in US and other developed countries have ageing population and hence the insurance network is also a Ponzi scheme.

For investment banks 2008 bailout should say clearly that they were running a Ponzi scheme on the subprime mortgage crisis wave and no more evidence is needed.

We are living our life in the midst of Ponzi scheme. We are victim of various Ponzi scheme run by the government and elites and even wealthy people.

Is bitcoin a Ponzi scheme?

The answer is no one knows. Bitcoin is not owned by any entity like central bank or financial institution and hence it is difficult to find out if someone is running a Ponzi scheme on it. While most of its investors are anonymous it is difficult to guess who is manipulating the value of bitcoin or using it for Ponzi scheme. Clearly there was a first mover’s advantage for bitcoin buyers. Early investors like Winklevoss Twins and other are now reaping the benefit big time. There is one thing in bitcoin system that matches the Ponzi scheme definition of US SEC i.e there are lot of campaigns to lure new investors into bitcoin world. This as per SEC’s speculation may be the start of the Ponzi scheme

Bitcoin is rare. It has a limited supply of only 21 million and around 2 million of it is yet to be minted. Let us look at US government printing money (creating it out of thin air)  in 2020 there was a steep spike in the amount of printed currencies. Now you tell me should the value of dollar go up or down against the commodity prices inside US and against its import and export. In Bitcoin the amount of supply is limited and as of now cannot be expanded beyond 21 million. 

When more people start using bitcoin and use it for storing it as wealth as well as currency of daily use it will definitely go up and down and I am predicting there will be a cycle based on 80-20 rule that at one point 80% of the coins will be stored as wealth and 20% will be used like a mainstream currency and then it will start to reverse and 80% of coins will be in mainstream use and 20% will be for wealth and then this will repeat. 

Governments all over the world have no clue on how to deal with this new currency that was created for digital world. Bitcoin is a very unique invention in the history and nothing like it was ever created before it. If governments encourage businesses to accept it for payment, come up with a proper taxation framework and control the volatility of their currency against bitcoin (not the other way around) then bitcoin will have a steady use and this will prevent from someone from running a Ponzi scheme on it. 

The real struggle between bitcoin and governments is about the government, central banks and wealthy giving up their power (not wealth) against the face of bitcoin (which was initially portrayed as coin for the people, by the people and of the people).  


The contents on this website is for informational purposes only. You should due diligence on your part. Contents on this site does not constitute a solicitation, recommendation, endorsement. Please treat the ideas from these contents with caution.