The other day I was scrolling through Twitter when I came across a recent interview that JP Morgan's CEO, Jamie Dimon, did on CNBC. He commented, among many other things, that crypto is a Ponzi scheme.
And it is not. But let's not stay with a surface level comment.
Let's see item by item what a Ponzi scheme is and why crypto projects like Bitcoin or Ethereum are not.
- A Ponzi scheme always works secretly. Bitcoin is open source, meaning anyone can see everything that is happening at all times. If you also want to see it with your eyes, you only need to use a blockchain explorer. There are thousands online and free.
- Low risk, high return on investments in the short term. We all know that crypto investments are volatile, and there are risks of loss in the short term (although in the long term it has shown to have a positive returns)
- Returns are too consistent. If you watched the Madoff documentary on Netflix, then you know that one of the pillars of a good Ponzi scheme is consistently delivering good results. Investors are less likely to research what they invest in if they are consistently profitable. Bitcoin has been different.
- Unlicensed sellers. Again taking the example of Madoff. Ponzi scheme sellers are never registered or licensed in any way. Crypto exchanges do. They comply with the regulations of each country or risk being heavily fined or closed. Even crypto earnings are subjected to tax.
- Difficulty receiving payments. A Ponzi scheme makes the cashing out your money complex. After all, the base of this pyramid is that no one withdraws the money. In crypto, you and only you are the owner of your assets and have them in your wallet. That is why at Arch, we place so much emphasis on self-custody assets.
Those 5 indicators are vital points that every investor should consider when assessing whether an asset can be a Ponzi scheme. It's pretty clear that crypto isn't, and it's built so that it can't be.
Have some projects sold crypto intending to be a scheme? Yes. But the technology and tokens aren't usually the problem. And again, it's avoidable if you always look for projects that allow you to have control of your assets.
And this is where there are things that I find curious about Jamie Dimon's anti-crypto statement.
JP Morgan has been offering crypto funds for a couple of years so that its investors can access these assets.
Additionally, they have services in the metaverse. They have given official statements commenting that they expect to have trillions of dollars (yes, trillions) in tokenized assets to participate in decentralized finance (DeFi) protocols.
That makes it abundantly clear that not even one of Wall Street's biggest banks thinks this is a Ponzi scheme and that Dimon's comments aren nothing more than an inflammatory statement to reassure their more traditional investors.
