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
Magellan has announced a raft of executive changes including the departure of head of investments Gerald Stack after 18 years and a second appointment from Maple-Brown Abbott.
Morningstar research of seven active Australian asset managers has found they are expected to see client redemptions averaging 3.1 per cent of their FUM per annum through to FY29, with two forecast to lose more than 10 per cent.
Franklin Templeton is to get rid of its Martin Currie branding and fold them into the wider group under ClearBridge Investments and Franklin Equity Group.
The widespread use of alternatives could lead to erosion of the very elements that make them alternatives, according to EY, as fund managers make them more palatable to retail clients.
