Bitcoin is the world’s first decentralized Ponzi scheme without any operator, said Hong Kong-based independent stock commentator David Webb—who is well known for creating a list of “50 stocks not to own” earlier this year—on his own website.
In his commentary posted on Thursday, Webb compares Bitcoin to a Ponzi scheme. "Its value is determined purely by the weight of money coming into it and the willingness of holders to sell it," he said. "Like any Ponzi scheme, earlier participants came in at lower cost, and are now receiving much of the billions of dollars [yes, really] that newcomers are putting in."
However, paid-up and paid-out members of Bitcoin are probably not going to jail and unlike the beneficiaries who cashed out of Madoff’s funds before he crashed, a Bitcoin beneficiary probably won’t have to pay anything back, he added.
“As long as you accept that you could lose everything you bet, you too can participate in the world's first decentralised Ponzi Scheme (or any of its imitators), but just remember that you are purely betting on the greater stupidity of others,” he commented.
Most of the bigger investors will privately admit that Bitcoin is a bubble, but they also believe that they can get out before it crashes, or don't much care because they have already cashed out far more than they put in, he pointed out.
“But just remember this: Bitcoin is essentially a zero-sum game. At any point in time, the cumulative sum of all net cash put in by losers will equal the cumulative sum of all net cash taken out by winners (excluding mining costs).” He warned.
Bitcoin is not the future of money
While it’s not unjustifiable to think that the banking system has failed its users, it’s unrealistic to see Bitcoin or other cryptocurrencies as the future of money that allows people to take back the control of their financial lives, Webb said. “As long as the World has governments with the power to tax and spend, that isn't going to happen,” he added.