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by makomk
1656 days ago
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I've seen that definition of Ponzi schemes a lot and it doesn't really explain how they work - you could say the same about, say, most of the stock market where the only way to exit your position is through funds from new investors. The defining feature of Ponzi schemes is that they pay out interest using the funds of new investors. It's important to understand this carefully because it's the reason Ponzis have to fail - the actual paper amount investors have in their acounts and can withdraw is backed by a pool of money that's slowly eaten away by the fraudulent interest payments, until one day the scheme can't meet withdrawals and the whole thing implodes. Ordinary cryptocurrencies like Bitcoin and Ethereum don't have this underlying mechanism and so it doesn't make sense to call them a Ponzi scheme. That doesn't mean that they're a good investment, but they don't work anything like a Ponzi. This lending scheme, on the other hand, has most of the usual Ponzi warning signs. |
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Stocks that don't pay a dividend have promise of paying one in the future as their cash flows grow. That's the fundamental basis to all stock valuation. It's why people talk about P to FCF, PE, PS ratios. For growth stocks, hypothetically, how much in dividends could I get 30 years from now?
It's true that many investors don't consider what the fair value actually is, but that's how you end up in a bubble and the price disconnecting from the fundamentals never lasts forever.
Real estate more obvious and direct via rents.
But yeah, pump and dump kind of stocks where they far exceed their fundamental value are similar.
We can argue semantics and what defines a Ponzi scheme, all I'm saying is that crypto largely has no intrinsic value. Any value that's explained is always self referential in terms of other crypto.
Bitcoin has some small intrinsic value for illicit payments, or hedging inflation in countries without capital markets. You could argue the net intrinsic value is negative due to the environmental costs though. But outside of edge/fringe cases, all valuation relies on a greater fool effectively.
Even gold is still majority used for industrial purposes, despite also being seen as an investment vehicle.