Intro
Crypto has been getting absolutely hammered lately.
If you even remotely know what’s going on.
You’ve no doubt seen Terra Luna get demolished and token holders get recked. When these events occur it gives people like Warren Buffet and Peter Schiff reason to say that Bitcoin and Crypto is rat poison squared or that it’s going to zero.
Lets these events and advice from traditional notable figures be a reminder that the crypto industry is the Wild West of finance. Some say it’s revolutionary. Some say it’s an elaborate ponzi scheme and that’s exactly where we will start.
Flaw #1: Bitcoin is a Ponzi scheme
Bitcoin is a Ponzi scheme. Yup I said it. A Ponzi scheme in its simplest form is when the price of something usually a stock but it can be anything that you can buy into, that goes up in value because more and more people buy it after you. The earlier you are, the more your initial investment goes up. And in order for your initial investment to keep going up you need more and more suckers to buy into it. If there are no more suckers, I mean buyers than usually the price collapses. In order to profit from the Ponzi scheme you need enough people to have enough money in it so you can pull your initial investment out plus your profit. Now you might be thinking that cruel and evil. So why would someone do that? Cause humans are, have always been and will always be greedy.
Now make no mistake about it what we just described can literally apply to everything including our entire economy and nearly every asset class in it.
Okay point proven I hope. Everything is a Ponzi scheme and another way to look at a Ponzi scheme is a confidence game. Which brings us to the 2nd flaw.
Flaw #2: Bitcoin is too volatile
This is a perfect example of when something that most people would agree is a strength (the price going up) can also be a weakness. There is 2 directions to volatility up and down. So let’s talk about the downside of Bitcoin’s value going up.
When something you buy for example this baseball card is bought because you think the value might rise you are more likely to not sell it for something that will go down in value. Why? Because you aren’t willing to trade it until you’ve experienced the upside from owning it. Now let’s say the player on that card has an amazing rookie year. So you think what the heck I’ll keep it. He’s probably going to have a great 2nd year. By now your getting offers from people wanting to buy it. But you politely decline why cause your greedy. You want more of the upside. You didn’t take a chance on buying this baseball card to make pennies you’re thinking at least 6 figures.
Now let’s say that the baseball player is starting their 3rd year in a slump. He acts out and gets a dui or gets caught using performance enhancing drugs you know, things that typical rising stars get accused of. The media slaughters his reputation and the public opinion of him takes a huge hit. And faster than you can say “I’ll sell” the value now reflects the new reality. This is the power of the free market. It can punish you just as fast as it can reward you. Sometimes even faster.
Now Bitcoin and Crypto like the baseball card answer to the free market. And the free market reacts rationally most of the time (sarcastically). Basically it just takes a few news stories, a few leaks or rumors or even an investigation and because people are greedy they will quickly try to cash out to protect what they have gained. Can you really blame them?
Now this whole time Flaw number 3 has been staring you right in your face.
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***Below has been added on February 15th, 2023***
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