Bitcoin, Whales, and Ponzi Schemes

What do Bitcoin, whales, and Ponzi schemes have in common?  Could it be that they are all part of the same mix?  Is it even possible?  On the surface, it looks very possible.  No legally operated investment program has ever grown so explosively for so long without collapsing on itself.

But wait a minute… no illegal program in history has grown to such levels and continued to grow like this, either.  So, what are we seeing here?

What is a Ponzi?

First of all, let’s take a look at what defines a “Ponzi” scheme.  From there we can decide if Bitcoin qualifies.

The very first Ponzi scheme, at least since the name was coined, was a man named Charles Ponzi.  Originally from Italy, he was a scammer and con artist who operated in Canada and the United States in the early 1900s.

Mr. Ponzi pledged a 50% profit for his clients within 45 days, or 100% within 90 days.  The scheme involved buying discounted postal coupons in other countries, then redeeming them at face value in the U.S.A.  But what he was really doing was paying earlier “investors” using the “investments” of later “investors.”

He ran his scam for more than a year before it finally collapsed.  His so-called investors lost approximately $20 million, which would be around $250 million today.

So, a simple definition of a Ponzi scheme is where some kind of opportunity is sold to unwary participants who then receive their “profits” out of the money coming from later participants.  The returns offered are the main attraction, being substantially higher than most genuine offers.

Perhaps the most famous Ponzi scheme of all times was not the one that gave the scheme its name, but the one run for more than forty years by Bernie Madoff.  His scheme, run under the auspices of Madoff Securities, earned somewhere near $65 billion in its lifetime.  At one time, he was one of the most respected and influential names on Wall Street!

In fact, while very elaborate, the Madoff scheme was a typical Ponzi scheme, which paid dividends out of money coming in from new investors.  As is typical of such schemes, it collapsed when it could no longer pay what it owed its investors.  That was caused when investors lost their investments when the sub-prime crisis wiped out their non-fraudulent accounts at other institutions and caused a sudden rush of redemption requests that Madoff was unable to cover, because the money didn’t exist to begin with.

What About Bitcoin?

Bitcoin has had a long and fantastic rise in value.  While there have been a few fluctuations, the value of Bitcoin just keeps going up – fast – and high.

But Bitcoin does not have a Charles Ponzi or a Bernie Madoff behind it.  It started its life as an invention by a shadowy figure somewhere, maybe, in Asia.  Or maybe it was more than one person.  No one knows.  No one knows for certain who.  The name or names associated with the birth of the block-chain and cryptocurrency are still uncertain.

Bitcoin has gone up fast – mostly – but no one has been selling it while making claims about how well it will perform or promising to pay fantastic profits.  That has been left entirely to the miners and market demand.

This simply does not fit the definition of a Ponzi scheme.

But What About “Whales?”

There is concern about so-called “whales” driving up the value of Bitcoin. That may have some real reasons for concern.  That’s because there are reports, including one from Bloomberg, suggesting that just a few holders of Bitcoin own most of it.  These owners are known as “whales.”

Whales are defined (for now, anyway) as investors holding ten thousand to one hundred thousand Bitcoins, making their fortunes worth tens to hundreds of millions of dollars.

Obviously, these people can afford to buy up a lot more Bitcoin, which has to raise its value.  But by the same token (pun intended!), if they suddenly decided to liquidate a large portion of their cryptocurrency holdings into dollars, the value could drop considerably and suddenly.

But if you’ve watched the stock market, you know that this happens constantly in that market.  There are all kinds of legal tactics used by wealthy investors to drive stocks both up and down, depending on what will bring them the most profit.

This means that anyone investing dollars in Bitcoin need to follow the same advice that has long been given to those investing in the stock markets:  Do not invest more than you can afford.  Isn’t it interesting that the same advice applies to gambling!

Is Bitcoin a Good Investment?

First of all, let’s be clear:  This post in no way should be considered investment advice.  It is not.  It is simply information about a cryptocurrency called Bitcoin, in which we take a look at some of the potential upsides and downsides to consider when looking at it.  It should be remembered that any investment involves risk, no matter how “safe” you might be told it is.

In my own experience, a bank once told me a retirement portfolio they offered was a very good and safe investment. In fact, when the sub-prime crisis hit, I lot my “safe” retirement investment.  On the upside, I will probably work at something for the rest of my life, keeping my mind and body active out of necessity for longer than many!

Secondly, when looking at investing in anything, it’s always a good idea to see how its performance compares to other potential investments.  After that, comparing apples to apples – ie, comparing investments in the same markets – is always a good idea.

Comparing Apples to Apples

Bitcoin has certainly entrenched itself in money markets.  It is now accepted widely for payment for just about anything, and it is also recognized by most banks.  So when we look at Bitcoin as a possible investment, comparing apples to apples, we need to look at how it compares to other forms of wealth related to money markets.

The obvious choice in my opinion is gold.  Gold has been the standard for determining value for so long that we used the idiom, “the gold standard,” to apply to anything that sets the benchmark in a particular industry.  “The gold standard in chip technology,” “The gold standard in home design,” “The gold standard in restaurant equipment,” and so on.

Such is the confidence that people have in gold.  But is that confidence well-placed?  How safe is gold in reality?  Are you confident that gold is the one thing that has just and will just keep on going up, forever?

In fact, gold has seen some fairly spectacular crashes in the last one hundred years.  It has lost value twenty-one times since 1969.  It has lost more than 30% of its value in a single year (1981) and has come close to losing 30% in a year on multiple occasions.  So gold isn’t a perfectly safe investment, either.

But what about gains?  Gold gained more than 133% in 1979!  But on average, it has gained fairly steadily over the long term.

Bitcoin started out at its inception as being worth practically nothing.  It took time to catch on.  You could have bought a lot of Bitcoin for very little.  For most of 2009, the first year of it being available, Bitcoin was worth less than a penny!  For as little as a dollar, you could have purchased more than one hundred coins.  On May 11, 2021, Bitcoin was trading at $56,515.79!

Bitcoin investors, which include top hedge funds and money managers, are betting the virtual currency could reach $100,000 in 2021!

Both gold and Bitcoin have increased dramatically.  Of course, the increase in Bitcoin has been much more spectacular that gold.  But what has driven up its price so much?


Confidence is what has driven up both gold and Bitcoin.  People have confidence in gold to maintain its value.  But they appear to have more confidence in Bitcoin.  And Bitcoin has the added advantage (at least some think so) of being anonymous and much easier to store.

“But Bitcoin is based on nothing!”

That’s a very common argument.  Because Bitcoin is “based on nothing,” the argument goes, “It could just collapse at any time.”

Probably the best argument I’ve seen comparing gold to Bitcoin on this basis goes something like this:

“Bitcoin has no intrinsic, real-world value.”

“Gold is a shiny yellow metal you can’t eat.”

In fact, neither Bitcoin nor gold would help you if the world economy collapsed and there was no food available.  Neither one is edible.  So, if a major disaster, act of war, etc. caused a breakdown in the supply chain, a good supply of stored food would be of far more value than either!


We are now entering a time of unprecedented money-printing as the world grapples with a pandemic.  Whatever your own views on the pandemic, how real it is, how it’s being handled, etc., the world economy has taken a huge hit.  Yet Western governments continue to “deal” with it by pumping endless streams of paper into their economies, rather than figuring out how to get people working again and producing real wealth.

The result of their policies is about to hit us – hard.   It is almost impossible to avoid the fallout.  The big investors, the “whales” of the stock markets know that, and they are liquidating.  Runaway inflation is almost certainly about to hit us.  What will happen as a result?

It’s already happening.  People are buying bonds and gold.  Those are the first places investors tend to go when fiat currencies like the dollar start to rapidly lose value.

But today they are investing in something new.  It’s called “cryptocurrency,” and Bitcoin is the biggest.  What will you do? 


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