Is crypto a Ponzi scheme?
Cryptocurrency has elements of a Ponzi scheme, according to AMP’s Shane Oliver, and is creating a speculative mania among investors.
Speaking to Money Management, Oliver, chief economist at AMP Capital, said Bitcoin and other cryptocurrencies lacked fundamental value and relied on other people’s speculation to keep rising.
“It doesn’t generate any income or any dividend, I am sceptical about that. It is a global phenomenon but lacks any fundamental value and that’s where the risk lies,” Oliver said.
“In some ways, it’s a Ponzi scheme because it relies on other people buying it, most of it is speculation and it does not provide a service which are elements of it being a Ponzi scheme.
“People also get very evangelical about it which concerns me as they are probably the ones who got in early but not everyone is in that category.”
He said that if people wanted to invest, they needed to be wary and aware it could see big falls in price, in 2017 the price of Bitcoin fell by 80% and lost half its value in two days. However, at that time, the asset was only narrowly held so fewer people were affected by the fall.
“People need to have their eyes open and recognise it is a punt and that they could lose their money, just because it’s gone up doesn’t mean it can’t fall back again,” Oliver said.
“If [an 80% crash] happened now then people could lose a fortune and that would definitely be a prompt for regulators to impose tougher regulation.”
In the past 12 months, the price of Bitcoin had risen 236% while Ethereum had risen 765% over the same period.
AUTHOR
Laura Dew
Recommended for you
Bell Financial Group has announced a 44 per cent decline in half-year net profit after tax but record funds under advice as it transitions into a diverse wealth management business.
Having predicted three ETF trends for Australia at the start of this year, State Street has shared how these are tracking and whether Australia will successfully reach US$30 billion ETF inflows for 2025.
Magellan fund manager Nikki Thomas is to depart next month as the firm reviews its range of global equity funds and transitions her High Conviction fund.
Sydney-based alternative fund manager East Coast Capital Management has formed its first advisory council as it enters its next phase of growth.
