Is Bitcoin A Ponzi Scheme?

In 2010, you could’ve bought 1 Bitcoin for $0.10.

In 2025, 1 Bitcoin now costs you over $100,000.00.

An absurd rise in value for what has been described by many as the greatest investment of the 21st Century.

But, there’s a problem. A big problem.

And it’s mainly down to why investors are flocking to buy Bitcoin, in comparison to it’s value as a commodity, and why it was originally created.

And because of this, you could certainly make an argument that Bitcoin is officially a Ponzi scheme.

So, What is Bitcoin?

Bitcoin has a number of different complicated definitions and descriptions, but I’ll keep it nice and easy for you.

Bitcoin was created as a payments system. A digital currency that allows you to transfer value between two entities, in exchange for other stuff.

It’s just like the cash/fiat currencies we all use today, but with a couple of differences.

One. It’s decentralised, meaning it (allegedly) isn’t controlled by a central government or bank, like the Federal Reserve or Bank of England etc. In effect, it’s owned by the people who use it.

Two. It’s finite. There isn’t an unlimited amount of Bitcoins, in contrast to post-Gold Standard fiat currencies.

These two reasons have contributed significantly to the popularity of Bitcoin, and the cryptocurrency space in general.

In short, Bitcoin is a revolutionary form of digital currency, operating outside the realms of centralised finance.

And the problem with Bitcoin starts right here.

What is A Ponzi Scheme?

A Ponzi scheme is a financial product/scheme with little to no intrinsic value. Instead, investors flock to buy something which promises strong returns, only to be paid those returns with money that has been deposited to the scheme by other investors after they have invested.

It’s a long chain of investing where the demand for depositing exceeds the demand for withdrawing. The pot of money in the middle gets bigger and bigger, and investors think they’re getting valuable, legitimate returns on valuable, legitimate investments.

In reality, it’s all a lie, and they’re being financially compensated with other investor’s deposits. Early investors do well, but later investors risk having their pants pulled down because once withdraws start to exceed deposits, the whole system collapses.

The first Ponzi scheme was started by a man named Charles Ponzi, an Italian migrant who moved to America in the early 1900s. Ponzi set up a company called the Securities Exchange Company, after finding a small loophole which meant he profit from arbitraging postage coupons across the Atlantic.

He noticed that he could make huge profits off of this opportunity simply by buying them in one region, and selling them in another for more. So, he went out and started asking for people’s money, promising incredible returns. And guess what? He delivered.

The scheme worked legitimately to begin with, with investors pocketing sensational returns from the genuine arbitrage scheme, and because of Ponzi’s returns, more and more money continued to flood in from retail investors.

Soon enough, there was so much money that the supply of postage coupons was tiny in comparison to his funding. So, he gave up, and eventually there was no intrinsic value in place other than that of taking in money from new investors, and paying out existing one’s the phenomenal returns they had been promised.

Eventually, a number of investigations (one short bit of research had revealed that Ponzi’s scheme needed hundreds of millions of coupons to be legit, but there were only around 27,000 in circulation) and a number of articles published in suspicion of the fake scheme caused a run on Ponzi’s company, and it collapsed.

There have been numerous infamous Ponzi scheme’s since, most notably the Bernie Madoff fund that collapsed during the 2008 financial crisis. At it’s peak, this fund had over $65 billion of AUM.

To put things into perspective, Bitcoin is worth nearly $2 trillion today.

The Paradox

The problem with Bitcoin is that it’s not being bought for the same reason it was created.

Bitcoin was created to compete with the centralised, and evidently flawed monetary systems were all forced to use today.

But, since then, it’s evolved to become nothing but an investment, and a damn good one at that. And because of Bitcoin being such a good investment, why on earth would you spend it? In other words…

Why on Earth would you use it for what it’s actually meant to be used for?

Especially when you can use cash as a medium of exchange. Because cash is way easier to spend. Cash has an infinite supply, and it’s always going down in value.

In truth, cash is close to being the opposite of Bitcoin in the sense that it’s a terrible investment. But, that’s why it’s so easy to spend. And in contrast, that’s why Bitcoin isn’t being used as it was intended.

This backs up the idea that Bitcoin is being bought for one reason: to sell it later on to someone else, for more than what you paid for it.

Bitcoins ability to appreciate in value is getting in the way of it being used for what it was created for: a payments system.

So you have this asset, which was created as a medium of exchange - something it’s not being used for - and instead is merely being bought because it’s arguably the best performing investment of the 21st century.

All it’s being used for is it’s financial opportunity. It rewards early investors, as more continue to flock in, rising the price of it. New investors hope for the same outcomes but the more popular it becomes, the less likely that is to happen (and the richer the early investors become, assuming they haven’t sold)

All the while, there’s no intrinsic value taking place other than value being moved between speculators. Not yet, anyways.

And there’s a term for that. There’s a term we use for financial products with no intrinsic value, that people invest in solely to benefit from value appreciation that comes from investors flocking in after they did…

That term? A Ponzi scheme.

Early investors made incredible amounts of money… all because a bunch of other people bought in after them. New investors are trying to do the same… but they can’t because they commodity in question is worth too much.

As a result, you have naive investors piling their life savings into ‘fartcoin’ to try and catch the next big thing. In reality, they lose everything to some silicon valley scammer who knows how the game of building wealth is played: when there’s a gold rush, make sure you’re out there selling shovels.

Final Thoughts

So, is Bitcoin a Ponzi scheme? The truth is that… maybe, but it doesn’t really matter.

The point is that desires (to be rich) are continuously exploited, and all logic goes out the window when people get a whiff of someone getting lucky on a speculative investment.

So I don’t care what you call Bitcoin. I just think it frustrates me that people continue to fall for the same bullshit get rich quick schemes because some douche on a yacht got lucky one too many times, and everyone else wants a piece of that life.

Yet everyone with a brain can see from a mile off that it’s all too good to be true, and that as soon as you hear about something online, it’s often already too late.

A Ponzi scheme unravels itself when withdrawals (in this case, investors selling) far exceeds deposits (investors buying) and there has been a number of cases since it’s creation where Bitcoin has fallen 70%, 80%, 90% of it’s total value.

But when this happens, speculators see an opportunity to make money, so they buy, and the cycle starts over, again, with no real intrinsic value ever taking place.

I personally don’t see a problem with people putting a small amount of their investment portfolio into super risky assets. But as long as you’re treating it as gambling, and not investing, and that you’re okay with seeing these gambles go straight to zero if it doesn’t work out, you’ll be okay.

If not, I suggest you avoid Bitcoin and the rest of the cryptocurrency industry like you’re a small child being cold approached by a senior employee of the BBC.

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