Critics Call Bitcoin a Pyramid Scheme

Bitcoin: From a $19,000 Peak to a Sub-$7,000 Floor

[P]Critics label bitcoin a pyramid scheme. Their argument is compelling: no one produces anything, no one receives a product in return, and the last person in pays the first person's profit. Deniers counter with equal certainty: no one promises interest for holding bitcoins. This debate has raged for years, surviving a peak of $19,000 and a trough below $7,000, and remains unresolved.[/P]

The Two Requirements Defining a Pyramid Scheme

[P]The classic model demands two things: a promise of high returns and extreme difficulty in explaining the product. By that standard, bitcoin's defense is simple: no issuer promises any return, and the network's operation is documented and public. Price appreciation, they argue, is something else entirely. The objection is that appreciation without underlying profit only occurs if new money enters the system.[/P]

[P]This is where the accusation takes hold. If the only way for the price to rise is for more people to enter and pay more, the scheme closely resembles what is legally prohibited. There's no formal recruitment or obligation to bring others in, true. But it's not needed: the narrative that 'this will go to $100,000' does the recruitment work without anyone signing anything.[/P]

From Afinsa to Tulips: The Resemblance to Stamps

[P]The most frequent comparison is with Afinsa and stamps: an asset with no production, scarce, and that appreciates on its own. If the purchase argument is that few units remain and their price can only go up, the mechanism is identical to any bubble in scarce goods. Dutch tulips and preferred shares fall into the same category. Supporters' response: bitcoin's operation is documented and public, unlike those. The most critical argue that tulips and stamps at least had a physical object, and they also burst.[/P]

Why Is Bitcoin Said to Lack Backing?

[P]The recurring criticism points to backing: no state, central bank, or public apparatus is behind it. The total supply is limited to 21,000,000 units, an amount many consider insufficient for any real demand. And an ounce of gold, the asset it's compared to, trades around $1,300: it has industrial uses, has maintained its purchasing power for centuries, and no central bank lets go of it. The defense counters with that same figure: if gold isn't backed by productive work and is worth $1,300, the backing argument isn't so solid.[/P]

[P]Added to this is a domestic issue: bitcoin lost on a broken hard drive cannot be recovered. The technical response—paper copies, encryption, offline backups—doesn't convince those demanding an authority that responds with more than mathematics.[/P]

The Collapse from $19,000 to Under $7,000

[P]The price provided ammunition to skeptics. When bitcoin hovered around $19,000, the message was clear: don't sell, because it's going to multiply. When it fell below $7,000, most of those urging to hold stopped buying. The narrative changes with the quotation, and for the harshest analysis, that's the signature of a speculative product.[/P]

[P]Not everyone loses. There's a record of a specific operation: 1,000 euros invested, purchased at about 130 euros per unit, and a final sale for 7,000 euros. Cases like this exist and are the best defense for the optimistic camp. The detail often omitted is liquidity: in markets under pressure, sell orders can take time to execute.[/P]

The Risk Not Shown on Charts

[P]As early as 2011, malicious programs capable of stealing bitcoin wallets and using others' computers for mining were circulating, according to information cited from Ars Technica. If someone loses their coins due to theft or a bicho, there's no guarantee fund or authority to respond: the complaint is treated as if something unrecognized by any state has been lost. Here, it resembles carrying cash in your pocket without a bank more than an investment.[/P]

[P]If the price multiplies again, the pyramid scheme accusation will fade once more, and the critical camp will once again be in the minority. If it crashes, the same arguments from each previous fall will reappear, with the same figures and faces. The only thing that changes is who is inside when the music stops. And that, with or without a promised interest, no one has resolved yet.[/P]