The Bitcoin Fairy

Yippee!

Bitcoin did a split and holders are twice as rich! Don’t you wish you were them?

Some people have wisely observed that Bitcoin is a pyramid scheme. It is, but the reason why is not at all clear.

And so suckers are still buying in to Bitcoin (BTC), while better ideas languish. It’s incredible.

Flocks of vultures, ever on the lookout for effortless get-rich schemes, all hoping for an increase, and a big one. The bigger the better!

At least people aren’t talking up Bitcoin on the street and in the elevators. Not yet. Give it time.

Of course, Jim Cramer has been shilling for Bitcoin, saying it may hit $1,000,000, and to “Act now!” Heh-heh: His rationale was that banks in Europe were using them to “pay off ransomware,” on his idiotic show, Squawk on the Street.

Ah — that gives a clue as to a possible motivation for the recent “WannaCry” computer virus panic.

Sure, it may “hit a million,” that’s the nature of these scams. That is a meaningless target.

But, enough are still piling in, to keep the price up.

If lotteries are a tax on fools, BTC is money for fools.

What is it, that “investors” think? That someone with “deep pockets,” is going to step up to “make good” on their inflated BTC holdings?

“I paid $1000 for my bitcoins, and they’re worth $100,000 at the current price! I demand you give me $99,000, now!”

There’s a BTC tracking site with an hilarious “FAQ,” that explains nothing about BTC, as usual.

One of the questions of the FAQ is, “Is Bitcoin a pyramid scheme?”

“No,” goes the answer, “Bitcoin makes no representation that you are going to profit off of it, like a ‘real’ pyramid scheme does.”

It plainly is a pyramid, or Ponzi, scheme, not because of any claims or representations BTC makes, but because it was structured that way.

They could have constructed a system where you put in a dollar, get out a dollar, after fees. After all, it is useful in aiding people in transferring money across borders, and it’s not unreasonable to have a fee for the service. What — you expected that for free, too, along with the benefit of all the effort that went into developing BTC, publicizing it and servicing it? Not even free, but to be paid for it?

That FAQ mentions that Bitcoin developers and early adopters deserve something for their labors and risks. Maybe sí, maybe no. The way it was set up was hardly sensible as a sound business model, since they took something potentially valuable, yet structured it as a gamble, instead of taking the honest route, requiring payment for services rendered. One could make a good case they don’t deserve anything.

For the business-minded, this does give rise to a brilliant opportunity: “Digicoin,” or “Bytecoin” or something like that, that does operate in an honest way. C’mon, lets see some IPOs, or “ICOs” (snicker), or is everyone looking only for the quick hustle?

It may be that vested interests will never allow a productive and proper use of the blockchain idea, because it would be a nuisance to try to keep it under control.

What they should do, at the BTC HQ, is to unwind the service: Pay back everyone who paid in, as nearly as possible, whatever amount they bought in for, less a service fee. That would be an honest wind-down, and people might get — who knows? Maybe 50% to nearly 100% of their buy-in back. Then, they should use the lessons learned to code up a new BTC, without the flaws.

Hah — that would set the feathers flying.

Of course, I’m just a liar and a hater. Because no one will ever suffer losses investing in Bitcoin. Any sign of problems, the Bitcoin Fairy’s got your back.

There must be a Bitcoin Fairy — she just conjured up free money for all with this new Bitcoin Cash (BCC). Everyone who had BTC got “free” BCC as a result of this “split” of the blockchain. Nothing short of a miracle, really.

Blog commenters are everywhere, and they’re living off the fat side of the hog:

And…

You know, the world is filled with selfless people, heroes, and, yes, martyrs. Martyrs, indeed, because they sacrifice for the good of others. Sacrificing their own time, when they could be making money, trading in cryptos, informing we the public of the value of Bitcoin. Going that extra mile, to motivate us off our lazy behinds, to get out there, and sip from the spurting horn of plenty that BTC represents.

Like Scrooge, my faith in humanity is restored. It truly is darkest before the dawn, and these light-givers provide the inspiration to uplift mankind, to the highest heights… And beyond…

That’s why they show a lot of protectiveness regarding BTC, and you can’t blame them. These good people — great people, are concerned that many, many others also make a quick buck. And so, they selflessly crusade, hoping only to see the happy faces of strangers enjoying the bounty as reward for their service.

Other expert commenters weigh in, with all the technicalities you ever need to figure things out. It is wondrous how expert people become in such a short time, able to toss out buzzwords with impunity:

Mercenaries

Sadly, BTC is driven by mercenary intent. A few are using it for money transfers, or merely experimenting with small amounts. But most buyers are “investing,” or claim “hedging” as a motivation to buy in. A way to protect against falling fiat currencies!

The hassles of setting up for Bitcoin trading, just to get something less convenient, less suitable for use as money, and with the potential of collapsing at any time are worth it? No. There are antiques, collectibles, coins, stamps, artwork and precious metals, for example, to use as a hedge.

No one inconveniences himself without expectation of gain. Players in this game are not investors or hedgers but speculators, as proven by their actions.

Exposing the Ponzi

How can we be sure about BTC being a Ponzi scheme, rather than just making harsh claims? Besides looking at the eternal, unjustified, price hikes, we can do an analysis, by considering a “small-scale model” of the system.

Some people say that Bitcoin has no real value, but it actually does, based on the pool of cash that went into buying it.

So picture that pool, which can only be as large as the accumulated buy-ins. Keeping the numbers small for ease of explanation, let’s say 20 people are participating in BTC. So 20 bought in, let us say at prices of, $100, $200… in hundred dollar steps up to $2000, for a total pool of $21,000. Obviously, that is the “backing” for BTC, and at our example’s current price of $2000, it’s no biggie to calculate that only 10.5 coins can be sold, out of 20 purchased, before the pool is depleted.

Of course, that fact doesn’t matter to the rubes buying in to take advantage of the “greater fool theory,” that there’ll always be another buyer, to keep the pool replenished.

A complication is that the price will of course go down if too many people sell off at once, but the purpose of the model is to make it obvious that those buying in at a higher BTC price/valuation are going to be financing those selling off at that higher valuation. Thus the “pyramidal” aspect, as the new contributors have to continually broaden the base of the pyramid to finance profit-takers. Since there is not an infinite number of potential buyers, this will have to stop at some point, and the system collapse in on itself.

This model works regardless of number of participants, the buy-in price, and size of “pool.” It should be clear that at some critical point, there’s going to be a sell-off, and those who bought in last, at the bottom of the pyramid, and several “levels” above them, will lose big.

There will be a sell-off because people don’t want to stay in, nor buy into, a falling market, but do like to buy into a rising market. At some critical point, enough people will want to take their profits out, when they sense that BTC buyer interest is waning, to give rise to a crisis situation.

If we knew the size of the investment pool, that would be a good guide to the safety and stability of BTC. But BTC doesn’t publish the quantity or size of the “pool” of money supporting the scheme, does it?

There is a posted “market cap” for BTC, based on the number of coins issued times its current daily averaged sale price, which tells us nothing, but is a misuse of the market capitalization concept, meant for productive businesses, and it also doesn’t account for lost or destroyed bitcoin.

Without knowing the size of that pool, it’s blind faith and trust that keeps it going. Since it’s been a sustained enterprise for quite a while, things must be “all good.”

So, BTC investor, I guess you aren’t out of luck, you lucky cluck. You just rely on the fact that no one knows what’s in the blind pool! Oh, happy day!

Unfortunately, it doesn’t go down that way. First off, there are all the “thefts,” in some cases, “inside jobs.” Are the thieves going to hold on to their bitcoins? No! They’re going to cash out ASAP. There goes some of the “pool.”

And, there goes some of the faith that sustains an operation like this. People, on hearing of “issues” like thefts, are less likely to buy in to BTC.

It’s comical. First came the tales of impregnability, how safe and “uncrackable,” “the blockchain,” is. “An innovation so advanced… that you don’t understand it!” Then, the next minute we’re hearing about thefts, cons, hacks and system failures.

Others, in from the beginning, will sensibly want to do a bit of profit taking, if their “investment” has ballooned up ten times, or a hundred times or more. They’d be foolish not to. That absorbs a little more of the pool.

Now, the reality. No one has to know how big the pool of cash supporting BTC is for it to crash. There doesn’t have to be any giant, bitter crisis, with people running around the streets waving their arms in the air, and swan dives off tall buildings.

Anyone wanting to cash out, has to go find a dealer or purchaser. Let’s say a seller goes to his friendly neighborhood BTC dealer, and flashes his “Bitcoin wallet” like a real pro. Well, the dealer — any given dealer — knows how many people have been in to buy, and to sell, and he probably has sources to keep tabs on how things are flowing at other dealers, as well.

It’s funny how this works, but if the dealer sees he’s paying out more than is coming in, it’s suddenly time for a computer “system issue.” Those crazy, buggy, virus-prone computers. Maybe it’s a crash, a forced upgrade, network congestion, what have you, but he just can’t redeem your bitcoin today. Maybe tomorrow, if you want to check back. Things are bound to be fixed by then…

No biggie, just visit that other guy that trades in BTC. “Say…! He’s closed! Was there a holiday today I forgot about?”

No, no holiday, but nevertheless, it was foolish to worry, because the next guy is open for business. At least, other types of business, because he isn’t participating in BTC anymore, no reason to speak of.

It doesn’t take long for a panic to start, then the inevitable “run,” but this run will be about as significant and meaningful as having the “runs,” and it’s all down the toilet from there.

The system is currently stable, for few are selling in a rising market. But hype needs to be maintained.

When things start to level out, the “plunge-protection team” can get in there and start fluffing with tales of bitcoin fortunes made. Also, supposing BTC is, for example, something like a CIA-run “operation,” it can “pump up” the pool with phony “created out of thin air” dollars. They know the psychological profile of the members of the greedy public, and know when and how to “prime the pump” to sucker them in. They will believe they “deserve their fair share of the pie,” after hearing about all those irresistible juicy profits.

In a falling market, the worry is whether the dealers are redeeming. With a faulty system, no one has to buy your bitcoin. That’s a difference between bitcoin and something with intrinsic value, like a commodity, where someone, somewhere, will buy it if they see “a good deal.” And it’s a difference with fiat currency that, as legal tender, has government-enforced purchasing power.

The promotion efforts mean ever-increasing comments about BTC on websites, news articles, remarks on the TV news, and endorsements, like the one by Jim Cramer, exactly as you’d expect, if you were seeing a Ponzi scheme in it’s exuberant growth stage. All calculated to make BTC look like a bonanza.

Taunting the naysayers, there can be anomalous behavior. “It’s unpredictable.” “What’s keeping it afloat?” “It should have crashed by now!”

Bitcoin rolls on, despite being astoundingly unstable, and all the screw-ups, “quirks,” mysterious behavior, breaches and thefts. And with a straight face, they talk about its security, using “hard cryptography,” and all that crock.

Nothing to See Here…

Notable recent “issues” with BTC aren’t hard to find.

There are already restrictions on what you can withdraw from BTC at the various exchanges. It didn’t take long. They’ve already “hardened” their operations in anticipation of the crash.

It’s funny how, despite each report, exposing more about this farce, the price flies in the face of negative news, hitting new daily highs.

Isn’t it obvious that the contrary behavior exhibited is characteristic of a fraud?

Red Herring

“They can’t steal bitcoin in your wallet,” say BTC defenders.

Perhaps, at least, not easily. Unless you have it stored with a company that “holds” your BTC for you.

Theft is built in to BTC, a form of inflation, created by everyone who cashes out at a profit.

Stock Market

Trillions of dollars in “quantitative easing” were created over the past several years. Where does all that fresh-minted money go, but into scams like cryptocurrencies? And, into pumping up the stock market. In fact, both Bitcoin and the overstuffed stock market are indicative of a worthless currency, not prosperity.

Though BTC will collapse to nothing, stocks don’t completely collapse in a depression, reflecting the value of the underlying asset. Both collapses represent a tidy harvest for the manipulators, though.

Summary

It’s not that it “looks like” a pyramid scheme, BTC, is a pyramid scheme. That is an inevitable, but not necessary, consequence of its implementation. The administrators have also proven themselves to be not above furthering the scam with absurd kludges to “fix” flaws in the original BTC code, as with the recent “split” into BTC and BCC, the split “gifting” BTC holders with value, “out of nowhere” — after the developers bending all over themselves to assert how the quantity of bitcoin is permanently limited.

At this stage, there is no “benefit of the doubt,” for Bitcoin, and that is impetus to examine all the cryptocurrencies for shady tactics.