Chen Sijin: Bitcoin is nothing but a Ponzi scheme

Author: Chen Sijin (Senior Venture Capital Consultant)

Bitcoin does not function as a virtual currency. When 50% of the 13 million circulating coins are owned by 950 people, it can be concluded that this is a completely shallow, non-circulating closed market.

Recently, Bitcoin, which had been dormant for more than a year, suddenly revived and became the "darling" of China's financial market. In particular, in the first three trading days since November, the price of Bitcoin rose by more than 1,000 yuan per unit, an increase of more than 40%, reaching a new high since early August last year.

It is reported that the rise of Bitcoin in recent months may be related to a social financial network called MMM (MMM for short). MMM entered China around July this year and launched marketing activities in China in the form of a pyramid scheme, which coincided with the rise of Bitcoin.

The so-called "MMM Social Financial Network" is an organization initiated by Russian financial fraudster Sergei Mavrodi many years ago. Its rules are very simple. New members first provide free aid funds to other members, and then obtain 30% interest every month. They mainly use Bitcoin for transactions.

Bitcoin is very similar to a Ponzi scheme. Early adopters of Bitcoin have a great advantage. If subsequent funds stop entering the field, Bitcoin will not continue to appreciate. Since the promised return on investment cannot be achieved at all, the return on investment for old customers can only be achieved by the addition of new customers or other financing arrangements. Therefore, a standard Ponzi scheme will continue to expand its audience and form a pyramid-shaped profit distribution system. Once no one joins, the game will not continue.

The Chinese stock market has fallen sharply recently, the property market is still in the adjustment period, and commodities have entered a long bear market. For example, in the past two weeks, the price of gold has fallen by nearly 10% to a five-year low. In addition, the returns of various financial products such as Internet baby products and P2P online loans are declining. The rebound of Bitcoin at this moment is undoubtedly a "fatal temptation" for investors who lack investment channels at this time.

Bitcoin, due to its "advantages" such as anonymity and complete decentralization, has been beautifully packaged and entered the financial market. In the past few years, it has been fanatically sought after by some people. This dreamy technological block, Bitcoin, is considered by its fanatical followers to be the future form of currency, that is, virtual currency.

What is virtual currency? The European Banking Authority defined it in 2014 as: "A currency that is neither issued by a central bank or public institution nor necessarily linked to a legal tender, but is accepted as a means of payment by natural or legal persons and can be transferred, stored or traded electronically."

However, we can see from the regulations that Bitcoin does not have the function of virtual currency. When 50% of the 13 million circulating coins are owned by 950 people, it can be concluded that this is a completely shallow, non-circulating closed market. It is not difficult for anyone with a discerning eye to see how narrow this trading market is.

Bitcoin is not a real currency. It is not a unit of account, a currency, or a means of payment or storage of value. No goods or services are priced in this crypto-currency, and there are significant price fluctuations. Recently, the United States has retreated to classifying Bitcoin as a commodity, which further proves that Bitcoin cannot be a currency and the original purpose of Bitcoin has been shattered. Commodities have always been speculative financial products on Wall Street, not investment products.

In other words, if investors choose Bitcoin as an investment channel, then entering this market is like joining a Ponzi scheme. The lies will be exposed sooner or later, and the last baton of the game of passing the parcel will be inevitable.