IF YOU ARE ON ANY HIGH PROFIT CRYPTO SCHEME,
GET OUT NOW!!
ONCE BTC starts dropping HARD, this time, a lot of people will try to cash out and all these schemes will CRASH!!!
MOST PEOPLE WILL NOT BE ABLE TO CASH OUT.
A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:
- In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.)
- A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors, whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
- A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants.
Cryptocurrencies have been employed by scammers attempting a new generation of Ponzi schemes. For example, misuse of initial coin offerings, or “ICOs,” on the Ethereum blockchain platform have been one such method, known as “smart Ponzis” per the Financial Times. The novelty of ICOs means that there is currently a lack of regulatory clarity on the classification of these financial devices, allowing scammers wide leeway to develop Ponzi schemes using these assets.
Economic bubbles are also similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant (until inevitable collapse). A bubble involves ever-rising prices in an open market (for example stock, housing, cryptocurrency, or tulip bulbs) where prices rise because buyers bid more, and buyers bid more because prices are rising. Bubbles are often said to be based on the “greater fool” theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme:
- In most economic bubbles, there is no single person or group misrepresenting the intrinsic value. A common exception is a pump and dump scheme (typically involving buyers and holders of thinly-traded stocks), which has much more in common with a Ponzi scheme compared to other types of bubbles.
- Whereas Ponzi schemes will typically result in criminal charges after they are discovered by the authorities, other than pump and dump schemes economic bubbles do not typically involve unlawful activity, or even bad faith on the part of any participant. Laws are only broken if someone is perpetuating the bubble by knowingly and deliberately making misrepresentions to inflate the value of an item (as with a pump and dump scheme). Even when this occurs, wrongdoing (and especially criminal activity) is often much more difficult to prove in court compared to a Ponzi scheme. Therefore, the collapse of an economic bubble rarely results in criminal charges (which require proof beyond a reasonable doubt to secure a conviction) and, even when charges are pursued, they are often against corporations, which can be easier to pursue in court compared to charges against people but which also can only result in fines as opposed to jail time. The much more commonly-pursued legal recourse in situations where an economic bubble is suspected to be the result of some form of nefarious activity is to sue for damages in civil court, where the standard of proof is only balance of probabilities and where mens rea does not need to be demonstrated.
- Following the collapse of a Ponzi scheme, even the “innocent” beneficiaries (including anyone who unwittingly profited without being aware of the fraudulent nature of the scheme as well as the recipients of charitable donations from the perpetrators while the scheme was in operation) will be liable to repay any such profits or donations for distribution to the victims. This typically does not happen in the case of an economic bubble, especially if it cannot be proven that the bubble was caused by anyone acting in bad faith.
- Items traded in an economic bubble are much more likely to have an intrinsic value that is worth a substantial proportion of the market price. Therefore, following collapse of an economic bubble (especially one in a commodity such as real estate) the items affected will often retain some value, whereas an investment that is part of a Ponzi scheme will typically be worthless (or very close to worthless). On the other hand, it is much easier to obtain financing for many items that are the frequent subject of bubbles. If an investor trading on margin or borrowing to finance investments becomes the victim of a bubble, he or she can still lose all (or a very substantial portion) of his or her investment capital, or even be liable for losses in excess of the original capital investment.