A Ponzi scheme is an investment fraud that involves the
payment of purported returns to existing investors from
funds contributed by new investors. Ponzi scheme
organizers often solicit new investors by promising to
invest funds in opportunities claimed to generate high
returns with little or no risk. With little or no
legitimate earnings, Ponzi schemes require a constant flow
of money from new investors to continue. Ponzi schemes
inevitably collapse, most often when it becomes difficult
to recruit new investors or when a large number of
investors ask for their funds to be returned.
Surely this isn't an "investment fraud" if it is completely honest about how it works. I wouldn't count on the SEC being reasonable about that though.
Yeah IMHO it walks the line between ponzi and pyramid scheme, so you'll either have the SEC or FTC coming after you. e.g. FTC has been hassling MLM schemes for years and they argue the differentiator is the fact that there's a product involved, but this clearly does not have a product, so best case the FTC shuts it down, worst case the interested agencies will include FTC, SEC, U.S. postal service and local and state equivalents.
Incidentally a pyramid scheme almost took down the Albanian economy and sparked the 1997 rebellion.
I suspect BTC investors are a little more sophisticated, but given the pseudo-anonymity behind cryptos, I wouldn't be surprised if something like this doesn't wreak a respectable amount of havoc in the future once cryptos are more widely held.
PS: If the site author's reading this, I'd start hitting the 5x5 stronglifts hard with a good bulking nutrition regime. You really want to hit the ground in federal prison with a size advantage. So I'm told. Can't wait for the AMA.
If you've been following what's actually gone on in the Bitcoin world for any length of time, you'd know that "BTC investors" aren't "more sophisticated" - they tend to be less so.
For one example, take a look at the people in the community who claim BTC exchanges are unregulated, and who "invest" in "stock markets" in BTC and the like: Just because you're not following the law or regulation doesn't mean you're not subject to it. It just means your hoping you don't get caught.
Another example? The pirateat40 Ponzi scheme and the creation of "Pirate pass-through" schemes. He claimed to offer 7% interest WEEKLY and Bitcoiners ate it up despite its obvious impossibility. And again they tried to securitize that by selling "shares" in and/or "insuring" their investments, and so on—all without acknowledging there's any form of legal or regulatory process to go through when doing such things.
Bitcoin is a total clown show, the history of economics repeated in fast-forward so anarcho-capitalists/libertarians can learn first hand why laws and regulations were invented.
>If you've been following what's actually gone on in the Bitcoin world for any length of time, you'd know that "BTC investors" aren't "more sophisticated" - they tend to be less so.
Part of this is Bitcoin self-selects against those with a rigorous understanding of monetary economics, capital markets, and foreign exchange.
Pretty much. It self-selects for libertarian ideologues, money-launderers, and people trying to take advantage of the ideologues and/or ride the bubble. The cool thing about BTC is that the tech bubble has given a particular set of fools a whole lot of money from which to be parted.
No. It is, however, a very profitable asset to make markets in,. That implies huge market inefficiencies and a large population of low-infomration market participants. The problem is the low size and liquidity make other markets more profitable to think about, since 10% of ten or twenty billion is less than a few basis points [1] of trillions.
But it's not completely honest. The FAQ says "Every time you send money to the Ponzi address, you'll get back 1.2x what you put in." But by the nature of these scheme, the last 15% of people won't get their money back.
Ponzi/Pyramid schemes often are honest about this. What they are usually not honest about is the mathematical impossibility of it being possible for it to keep going very long. But some simply bet on people being greedy enough to take the chance that they are getting in early enough...
As such I think it is good commentary on Bitcoin and cryptocoins in general - a lot of people do appear to enter expecting a pyramid, and just hoping to get theirs before it collapses.. The question is what proportion they make up.
Beside the word "solicit" the definition you deliver applies 100% to that website. So why do you think it does not follow the definition? The returns come from new investors. It requires a constant flow of money. It will inevitably collapse at one point.
The website does not imply "little to no risk." It explicitly states that it's a Ponzi scheme, which clearly means that you're gambling on not being the last one the party.
Disbursements from ponzi.io are not purported to be investment returns or legitimate income of any kind. There are clearly other people's contributions.
