Bitcoin: Worse Than a Ponzi

Robert Z. Aliber, Charles P. Kindleberger and Robert McCauley
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Robert Z. Aliber: University of Chicago
Charles P. Kindleberger: Massachusetts Institute of Technology

Chapter Chapter 14 in Manias, Panics, and Crashes, 2023, pp 349-371 from Springer

Abstract: Abstract Bitcoin and other cryptocoins have drawn tens of millions of investors, made billionaires, and reached $3 trillion in aggregate value in late 2021 before falling sharply. Yet crypto promises no cash flow and provides little financial service. Like Ponzi schemes, late investors provide any profit for early investors. Unlike a Ponzi, crypto cannot collapse in a run (although crypto exchanges and crypto lenders/borrowers can and have). And unlike zero-sum Ponzi schemes, bitcoin is a negative sum game: mining new coins consumes electricity and computers. Bitcoin is more akin to a decentralized pump and dump scheme with a negative sum. The end game for bitcoin and its ilk could see investor revulsion at the abuses of the centralized institutions that have sprung up to trade it, including exchanges and near monies, so-called stablecoins.

Date: 2023
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DOI: 10.1007/978-3-031-16008-0_14

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