Reflections on Ponzi Schemes – Brad Feld

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In late 2022, some people started shouting that crypto was a Ponzi scheme after earlier announcements by Bill Gates, Warren Buffett and Charlie Munger.

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Others, especially in the crypto industry, were saying some version of “well, FTX probably looks like a Ponzi scheme, but crypto is legit and not a Ponzi scheme”. But then on the same website someone else in the crypto industry wrote Crypto Ponzi Schemes: How to Recognize and Protect Yourself from These Scams. Ok. How confusing.

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What should an investor believe? The SEC has an official publication, Ponzi Schemes Using Virtual Currencies. This… is not helpful… and means that almost everything in crypto is a Ponzi scheme. At least it has some phone numbers you can call with questions. Yep, still not helpful.

Yesterday, I saw MADOFF: The Monsters of Wall Street. I was tired, so I just sat down and enjoyed four hours of this $65 billion 20 year Ponzi scheme. It’s worth a look for historical context.

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While longer and less dramatic, it is more informative than The Wizard of Lies, which stars Robert De Niro and Michelle Pfeiffer as Bernie and Ruth Madoff. However, De Niro plays the monster of Wall Street perfectly.

As crypto continues to evolve, it is worth remembering the role of human nature and greed in all of this. Ponzi and frauds pop up whenever an economic bubble pops. And there’s a lot of it, especially human nature and greed, all the time, everywhere, in finance.

Amy and I watch The Big Short every couple of years to stay grounded in reality.

Pro tip: Whenever you see the phrase “money-back guarantee,” close your browser tab.



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