The seemingly limitless innovations emanating from information technology have created enormous opportunities for all kinds of predatory behavior unfettered by social regulation. Cryptocurrencies are one of the leading contenders in this competition. Crypto is a Ponzi scheme. It’s the IT version of what Bernie Madoff did in the New York mutual fund scam of the 1980s and ’90s, which was the biggest Ponzi scheme of all time – until now.
Crypto coin platforms take money when people buy virtual “coins”, and if enough people keep buying them, the value of the coin increases. In simple crypto cases, money just sits there, not invested in any revenue or profit generating activities, and people can only sell their coins at a profit if more and more people keep buying the coins.
If a lot of people buy, the value of the coin increases dramatically, and the people who cash out while this is happening make a bundle. But if new buying starts to drop – in part because bitcoin players know the game is approaching its tipping point – then eventually the cash reserves and coin values fall to the point where people paying out get less than they invested. at that point, everyone else panics and cashes out as fast as possible (it’s not that easy to sell crypto coins quickly) and many coin owners are hit hard; eventually the coins go bankrupt.
Some banks realized all this (they were a little slow and cautious) and got into it. The problem for everyone else in the game is that the banks have the IT resources to predict when the tide will turn and quickly trigger their coin transaction systems to get out quickly. So unless you think you can compete well with Wall Street players and IT, stay away from crypto (not to mention you have an aversion to stealing from your peers).
A more recent wrinkle in cryptocurrency came with crypto “exchanges”. The crypto bosses said “let’s invest our pile of money”, now operating as a mutual fund, but under no regulations to protect investors (like those coming out of the Great Depression). A particular problem with exchanges is that when the value of a coin starts to fall, there is a strong incentive to make risky investments with the coin owner’s money to save the ship, which of course usually ends badly – how can they compete in the stock market with fake cryptocurrency gains, that’s why are people there.
Hard times are hard enough for most working people’s economic prospects. Crypto is the new shiny trick that makes things far worse. People are drawn into a scam that promises benefits by stealing from… people. Aren’t digital free markets wonderful? This is how civilizations die.
It’s interesting and appalling that the talking heads haven’t called out Ponzi-cryptos for what they are. Economist Paul Krugman from The New York Times came close to the editorial page a few months ago (July 12, 2022), but couldn’t say “Ponzi” out loud.
Robert Park lives in Anderson Township.