According to Robert McCauley, an associate member of the University of Oxford’s Faculty of History, notwithstanding Bitcoin being heralded as the best performing commodity of 2021, the number one rated cryptocurrency is ‘worse’ than the legendary Ponzi scam.
In a Financial Times opinion piece, McCauley stated that comparing Bitcoin to a Ponzi scheme is an understatement because both do not have the same conclusion and have a ‘truly negative-sum.’
According to the professor, investors who acquire Bitcoin are not motivated by the need to generate money, but it is a zero-coupon for long-term profits because it guarantees anything.
According to McCauley, there are no fundamentals in Bitcoin that allow investors to profit until they sell their shares to another individual.
Moreover, he predicted that the collapse of Bitcoin would be more disastrous than the Ponzi scheme, which prompted a number of circumstances.
Bitcoin’s demise might be precipitated by stablecoins.
Notably, he identified the fall of stablecoins tethered to the US dollar as a significant weakness for Bitcoin. According to McCauley, the collapse of stablecoins with a large market cap may easily upset the whole crypto economy.
“These “unregulated money market funds” were marketed as dollar substitutes with secure assets that matched their outstanding liabilities.” Given the absence of regulation and transparency, it is not difficult to envisage a large stablecoin breaking the buck,” McCauley added.
He went on to say that Bitcoin’s cash flow is akin to a penny stock pump-and-dump plan that is based on a Ponzi scheme. The researcher suggested that investors purchase Bitcoin, which he described as useless since it appeals to the urge to earn.
This defies the long-held skepticism of many economic experts and others that bitcoin is, in essence, a Ponzi scheme. Jorge Stolfi, a Brazilian computer scientist, is one who has argued against this. His point of view is founded on the following findings:
- Investors purchase with the intention of profit.
- Profits from those who cash out support that expectation.
- However, such gains do not originate from somewhere else; they are exclusively the result of fresh investments.
- And the operators pocket a sizable percentage of the proceeds.
All of this is correct. However, opponents may be overly generous in labeling bitcoin a Ponzi scheme on two points. For starters, bitcoin does not have the same goal as a Ponzi scheme. Second, from a broader societal standpoint, it is a severely negative number game.
McCauley also thinks that Bitcoin will be subjected to a continual cycle of pumping and dumping, with fear of losing out acting as a motivator. As a result, he believes that, unlike the Ponzi scheme, the cycle will lead to a different outcome for Bitcoin.
He also stated that Bitcoin is indeed an asset, as opposed to a Ponzi scheme. McCauley observes that Bitcoin’s power usage via mining is a worry that makes it worse than a Ponzi scheme.
‘Only miners gain,’ says one.
McCauley observes that, like the Ponzi scheme, only a few people in the Bitcoin community gain. He picked out miners, claiming that they are promised earnings as long as the system remains operational.
With Satoshi Nakamoto, the creator of Bitcoin, staying unidentified, McCauley claimed that in the event of a loss, buyers will have no single authority to chase their wasted revenue.
McCauley now joins the ranks of academics who have discounted Bitcoin’s role in the financial system. According to Finbold, Cornell University senior lecturer of international politics Eswar Prasad has argued that the asset’s presence may be short-lived.
Bitcoin, according to Prasad, is inefficient and unable to enable payments.