The Collapse of the Biggest Ponzi Scheme (in All Human History)

The New Ponzi Scheme Collapse.

According to infocrypto the price of Bitcoin could easily skyrocket to the $400,000 mark per unit. Since the financial crisis of 2008, many citizens no longer trust the current financial system. Privatization of gains, socialization of losses, uncontrolled money printing, general impoverishment.

Faced with this eroding trust in institutions, many citizens are finding hope in virtual currencies. Limited production quantity, verifiable exchanges (thanks to the block-chain, acting as a huge ledger), direct exchanges without an intermediary to get a commission… In short, people are rushing to build virtual currency portfolios. At the risk of losing all of their capital.

Indeed, virtual currencies are not real assets… they are not even investment vehicles. First of all, they are extremely opaque and speculative “coins”. I personally call them “Gamblecoins” instead crypto-currencies or crypto-assets. Those gamblecoins were primarily born as tools for challenging the dominance of the dollar in the global economy.

And this threatens all people who have invested their savings in pursuit of wealth.

The World’s Reserve Currency on the edge of the precipice.

Currency is above all a matter of trust

Since the beginning, governments worldwide have been cautious about cryptocurrency. Some believe it’s used by criminals to break laws, especially to avoid paying taxes.

But the true fear from governments about crypto is that it’s impossible to control. There’s no central bank or government overseeing it, so the government can’t freeze accounts or punish people financially. This allows both individuals and countries to avoid the regular global money system, especially those under US sanctions.

People have lost trust in the US dollar.

Since the end of the Bretton Woods agreements in 1971, Western countries have not stopped printing huge amounts of money.

Graph 1: Evolution of the M1 money supply in the Euro zone since 1970

The more money Central Banks print, the more it loses value. This phenomenon reduces the purchasing power of individuals over the years. We call this phenomenon inflation. People who save their money in cash on a bank account are indirectly taxed with inflation. Who doesn’t feel that life is getting more and more expensive? To protect themselves against this phenomenon, many economic players buy virtual currencies, gold or raw materials.

It is precisely for this reason that religions prohibit this type of currency based on… nothing. By forcing governments to hold a “Gold or Silver” counterpart before printing money, you limit the money-creating power of Central Banks.

The end of the dollar as the world’s reserve currency

The United States has abused the exorbitant powers of the dollar. Since the 1970s, America’s wars have been financed primarily by money printing.

But it is above all the economic and financial sanctions that today threaten the hegemony of the US currency. Sanctions against Venezuela, Iran, Russia, China, North Korea. Sanctions against French or German companies. Sanctions against targeted individuals. Instead of making arms speak, the Americans seek first to economically strangle the countries that threaten its hegemony (or incidentally, its interests). It is cheaper and quite effective.

Organizations like the World Bank or the IMF, seen as satellites of Western governance, are called into question.

These sanctioned countries therefore have only one objective: to escape this financial system built around the US dollar (and ultimately controlled by the White House government).

Russia is realizing the potential of virtual currencies very quickly. With a digital version of her Ruble, she can now make sure to bypass the entire American machine. You just need to find new allies ready to accept this new virtual currency. No US institution is involved in the process as it is only an over-the-counter exchange. Isn’t money just a tool of exchange? Bypassing the sanctions therefore becomes possible.

For the Americans, this represents a threat to their international influence. If they have succeeded in establishing themselves as a planetary mega-power for more than 70 years, it is above all thanks to what General De Gaulle called “the exorbitant privilege of the dollar”. This explains the offensive attitude of the Americans because they realize that this whole system is slipping away from them. They are trying somehow to want to regulate virtual currencies. Without success so far. They are even ready to live with virtual currencies, but on one condition: that they are integrated into the international financial system, incidentally under their control.

In 2016, China announced its desire to create a digital Yuan. The European Central Bank has done the same by proposing a study on the creation of a digital Euro. Faced with the sanctions that are suffocating Venezuela, the latter has called on Russia to help it technically to set up the Petro. By doing this, Venezuela would risk returning to the oil market, causing a drop in the price of a barrel due to the sudden increase in production… which would threaten the American oil industry, because the latter needs high prices to be profitable.

It is therefore a question for these “Powers” of building a world in which the United States could never again intervene in a transaction. A world in which they control their own virtual currency so that they can survive as a state. Because if you don’t control your own virtual currency, how are you going to tax your citizens? And this is about to happen.

Gamblecoins, the very archetype of the speculative bubble.

Why are gamblecoins not an investment?

An investment is mainly characterized by two attributes: (i) the asset you buy protects your capital and ii) provides you with a stable “cash flow”.

When you buy an apartment, the risk of losing all your capital is limited. If you rent your property, you will receive a stable monthly rent for a certain period. The value of your apartment therefore intrinsically depends on what you earn in rent (among other things, such as location etc.).

If you buy a plot of land, you can determine how many carrots you will produce. By simple calculations, you can estimate the profit you will make at the end of the year. And thanks to inflation, the value of your land increases every year, protecting your capital.

Similarly, if you buy shares of Coca-Cola at a price below the intrinsic value of the company, the risk of losing your capital is limited (for example, you estimate that Coca-Cola is worth $30 per share, but you buy it at $10). And the stock in question pays you a dividend and potentially a capital gain based on the underlying business financial results.

This is not the case for Bitcoin. Bitcoin does not distribute rent, interest or dividends. It produces no good and renders no service (besides being a payment tool). Its price depends on what everyone is willing to pay, without any fundamentals to determine the why and how. All this under the soft music of a frenetic communication relayed by the Media. Each buyer is remunerated thanks to new entrants. The whole system is like a vast Ponzi scheme.

Others see Bitcoin as a currency. But behind a currency, you usually have an army, institutions and an entire economy. You have millions of citizens who get up every morning to produce Goods and Services. None of this exists for any virtual currency. In addition to being very volatile (while a currency needs stability).

Cryptocurrency is therefore more like blind speculation than an act of investment. Greed in all its glory. Let’s “get rich quick” inherited from the Golden Boys of Wall Street. When an “asset” is based on nothing, its price does not take long to tend towards zero.

What causes a speculative bubble to burst?

It remains difficult to predict. But usually, the bubble ends up bursting when the “speculators” themselves realize that the asset they own is worthless.

In 2008, toxic financial products (namely called “subprimes”) ended up being worthless when investors realized that these financial products were built on a vacuum. A sandcastle always ends up collapsing.

In the case of virtual currencies, several catalysts can burst the speculative bubble.

First, the American ban on transactions from Visa, Mastercard or Paypal to virtual currency trading platforms could burst the cypto bubble. Just remember the “Gold Reserve Act” of 1934 in the United States, a law passed to literally prohibit the American people from holding gold. A similar event may occur for virtual gamblecoins.

Then, a single giant blackout can threaten the viability of these electricity-consuming currencies. And that is the Achilles point of this whole system: without electricity, there is panic.

Finally, as almost often in monetary crises, a loss of confidence (due for example to an intensification of fraud) can cause the collapse of the pyramid.

Figure 1: Propaganda article from Fortune qualifying Bankman-Fried as the next Warren Buffet

Figure 2: FTX goes Bankrupt, tons of cypto holders ruined

Figure 3: Binance on the brinks of collapse

Gamblecoins are neither an asset nor an investment vehicle.

It is a purely speculative object whose primary ambition is i) to challenge the suicidal money printing of central banks, ii) to depose the dominance of the dollar in the world economy and iii) to escape Western sanctions.

And like all speculative objects, it is not a question of advising people against playing in this giant casino… on the contrary, it is a question of warning about the danger of risking a large portion of your capital.

You can speculate with small sums ($2,000, $4,000 or $5,000). But beware of what Robert J. Shiller calls “irrational exuberance”.

It is largely possible to see Bitcoin at $400,000 per unit as stated on infocrypto. But you need to understand that it reached this price not because Bitcoin produced more goods and services but rather because more and more people are piling into this gamblecoin, which artificially increases its price.

During the tulip mania, a single bulb of tulip was selling for $300,000. History never repeats, it rhymes. Be cautious.