Crypto has been called lots of things in the past, rat poison and most especially a Ponzi scheme. But in a way I think anything that is expected to give you return after investing should be considered a potential Ponzi scheme. I sometimes think of the possibilities of bitcoin going to $0. How possible is that, imagine if all the whales sell of their bitcoin, who will buy the bitcoin held by the retail traders. But is that really possible?
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The beauty of crypto is that while some are doubting and being skeptical about it, it’s slowly being adopted in the world. Coming to the ponzi part, some times it feels like a ponzi. But have you ever tried to know where the word “ponzi” came from. Ponzi was originated from a man who conned lots of people with a postage stamp investment and promised the investors a 50% profit in a matter of 45 days. Guess what this con artist name was? His name was Charles Ponzi, must be a bad ass to have the whole world name a con act after you.
In my little experience of investing, it’s sometimes hard to be able to identify a legitimate investment from a scam one, because their intentions is what differentiate them from each other. A scam investment can make you feel good about yourself, make you comfortable and give you lots of reasons to trust them. Sometimes stock and crypto investments feel like Ponzi scheme. Ponzi scheme can also be called robbing Peter to pay Paul, because, you get money from Mr B to Pay Mr A then later get money from Mr C to pay Mr B. This is what seems like something that we see in crypto, whenever you sell a coin or a token, someone is alway ready to buy it no matter the price. Especially when there is liquidity in the market, it’s an open market, there is always a buyer and a seller.
We end up calling it a Ponzi scheme when there is no buyer but lots of sellers, this means that liquidity is not present in the market. Sometimes liquidity can be locked and only be accessible by the devs, this way no one can sell but can only buy. We have seen such thing in projects like the squid game token. In my opinion a Ponzi scheme is an asset created out of lies and fake promises with no utilities whatsoever with the sole intention of gaining the trust of its investors and running off with their money.
Crypto currencies are currently having utilities thereby giving it a reason for its demand. When a coin doesn’t have any utility then it’s a shitcoin and we all know what happens to shitcoins, they get rugged and the bottom investors lose their money. Early investors that pulled out on time are lucky to have their money back, while late investors that invested late are unlucky to lose their money. So the unlucky investors who invested late without pulling out their funds have successfully been rubbed to pay the early investors who pulled out.