Is Cryptocurrency Just a Big Pyramid Scheme?

Is Cryptocurrency Just a Big Pyramid Scheme

Is Cryptocurrency Just a Big Pyramid Scheme?

So what’s new in the world of cryptocurrency? That all depends on the day. In fact, sometimes things can change hourly with digital currencies. Just do a quick Google search and chances are you’ll find all kinds of stories about crypto. For example, we just did that very thing and here are few headlines we found:

Will A US Company Ever Issue Its Own Cryptocurrency?
Don’t buy your bitcoin from a place that could disappear overnight
The ‘Crypto Bubble’ Is About More Than Market Mania
Bitcoin rallies above $9,000 after positive G-20 cryptocurrency meeting
As you can see, the world of cryptocurrency is a big deal right now. But is it all really legit? Is cryptocurrency a real thing, or is it just a big scam? Although people all over the world are clamoring to get into the crypto game, there are some people who still think the whole thing is bogus.

Where Have All the Crypto Offerings Gone?
According to some, if you take a closer look at the entire crypto industry and not just the big players, like Bitcoin and Ripple, there are some alarming signs. For example, according to a recent report, 50 percent of all initial coin offerings have already died or been killed off. Furthermore, many of the digital coins still in circulation are obvious scams.

Additionally, if you pay attention to the massive swings in the market, it will likely leave you with at least some suspension. Just look at Bitcoin as an example. This popular crypto coin has experienced huge swings, going from more than $20,000 back down to less than $10,000 in a matter of days. Ripple is another example. When the crypto market crashed in January Ripple co-founder Chris Larsen lost $44 billion of his net worth, leaving him with about $15 billion.

Multi-Level Marketing Traps
Also known as multi-level marketing schemes, pyramid schemes work by recruiting people and then offering them incentives to recruit additional new people. The more people that buy in at the bottom level, the more money the people at the top make. If you don’t recruit new people you don’t really make much money. In many cases, the scheme eventually crashes and those at the bottom are left with nothing, while those at the top make piles of money.

Pyramid Scheme Similarities
So is this what is happening in the crypto world? It might not be as obvious as a pyramid scheme but there are some similarities. The people who bought into digital currencies have a keen interest in recruiting others to continue purchasing these currencies. The more people that get involved and buy into crypto, the higher prices will go. That means those at the top, the early buyers, will become even wealthier. In fact, 1,000 people own 40 percent of the entire Bitcoin market. That means relatively very few people are getting rich from Bitcoin.

All Investment Has Risk
So, are Bitcoin and other cryptocurrencies just one giant pyramid scheme? While it is possible, no one can really say for sure. Whether or not the cryptocurrency world will lead to untold riches for all who buy in, or will eventually crumble to the ground leaving most owners in the dust, remains to be seen. As with any investment, do your homework and use caution. Because, by nature, all investments come with risk.

 

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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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