People who purchase stocks early do so expecting the price to rise when more people buy in later for higher prices. Same thing with gold. People say stocks have value because they provide dividends, but when was the last time anyone made significant income due to dividends? I think most companies do not even pay dividends.
If Bitcoin was actually a pyramid scheme then the early investors would be eager to cash out at the expense of everyone else, but many people involved in Bitcoin truly believe in the technology and the idea of a global currency that exists outside of government/bank control. Those people are not eager to part with their Bitcoins, and I don’t know why that would change all of a sudden.
Gold has similar issues. But there is significant non-speculative value in gold. How much, I'm not sure, but it's useful for electronics and for decoration, etc. Also, gold's value is the supposed stability. Bitcoin's value is it's supposed growth, which leads to nasty feedback loops.
I wouldn't invest in gold. I think it's still in a bit of bubble caused by the 08 financial crisis.
Stocks are a different story altogether. You are buying equity in a company that has value. The stock market might be under or overvalued at any given time, but it is still tied to the value of the companies.
I would say stocks are valued by the perceived value of the company and/or the potential future value. They are somewhat speculative too. Look at Tesla or Amazon for example. They have insane values despite not even turning a profit for long periods of time.
I get your point though. Bitcoin has no intrinsic value tied to anything specific, but I still don’t think that makes it a pyramid scheme. Bitcoin has A LOT value to people in countries that are on the brink of economic collapse due to inflation. Even in the United States, the FED prints over $200 billion a month. So in theory Bitcoin should hold value over the long term better than the US dollar.
Bitcoin speculation is now just speculation based on price alone. Why is bitcoin going up? Because people think it will go up. That is a nasty feedback loop, that right now is causing it to have insane growth. The higher the price the more demand, the more demand, the more price goes up, etc.
But the opposite can (and will) happen. The demand for bitcoin drops because the price drops, the demand drops cause the price to drop further. etc.
Since the stock market is based on meatspace demand, if Tesla started to spiral for no reason, someone would buy it just to make a cash profit from it. People like Warren Buffet buy companies they think are undervalued to capture the profit.
>Bitcoin has A LOT value to people in countries that are on the brink of economic collapse due to inflation. Even in the United States, the FED prints over $200 billion a month. So in theory Bitcoin should hold value over the long term better than the US dollar.
They'd be better off buying property, securities, or even just USDs.
Bitcoin has gone up over 10 times this year. There is a huge risk it'll go back down to 1/10th. I wouldn't put any significant amount of money in such a volitile "asset."
A pyramid scheme requires unsustainable exponential growth in number of new participants. Bitcoin can survive without that, so it's not a pyramid scheme.
> Said another way, why would anyone "invest" in Bitcoin unless there is an expectation that the price of Bitcoin will increase?
Investment being motivated by expectation of future price increases is not enough to make something a pyramid scheme. I mean, that's what motivated most investment in anything.
Can Bitcoin really survive without an ever-increasing price? If it can't, it's a pyramid, because it does not generate wealth like most investment avenues.
Requiring ever-increasing price as measured in some other currency is not what defined a pyramid.
Requiring unsustainable growth rate which must eventually consume all of the available number of something limited is; most strictly, a pyramid scheme requires exponentially increasing number of participants at a rate that exceeds population growth (usually on the scale of requiring the entire population to participate in a very short period of time.)
To not be a shrinking role in the economy, Bitcoin may needs a long-term growth rate (once coin mining is exhausted) equal to the growth rate of the economy (which may or may not be always positive over the long-term, and if it is may only be logistic), but that's not a pyramid.
Bitcoin wasn't: it was designed in good faith as a cryptocurrency. That people ended up using it as a speculative device says more about these people than the actual technology.
Also pyramid schemes are usually run by few people that cash out when it is no longer sustainable. Once it is so, it's over, as it usually the scheme gets exposed and owners lose all credibility. Bitcoin on the other hand went already through several "crises", and came out even stronger.
Also, in the case of Bitcoins, as more people buy them, and original owners cash out, the amount of actual owners dilute, so that the possibility of a few people dictating huge movements in price lessens over time.
Calling it a pyramid scheme it is an oversimplification, although on the surface it shares many traits with them: I don't think many people can predict how it will turn out.
Bitcoin is probably in a large bubble, but there is real value behind it.
For now, Bitcoin seems to be taking shape as a store of value, like gold. Another, more updated crypto currency, might take over as day-to-day currency while Bitcoin is the larger value store.
Hard to say how things will shake out but it's surprisingly still the early days of crypto technology.
An investment in bitcoin was a bet that it would continue to be used for criminal activity.
The current bubble is based on exactly what you say, though. Price manipulation by a few shady, unregulated exchanges leading to insane price increases, followed by a speculative mania.
The current bubble is mostly based on what you say, but it is still great for all the things you mentioned earlier, "selling illicit goods over the internet, collecting money for ransom ware, evading currency controls and taxes, and general money laundering"
It's entirely possible that, at least some of, the price is being boosted by mechanisms that would be illegal in other, regulated, markets. But it's not clear, at least to me, how much of an issue that is either legally or practically.
As someone who has been in the space for a while, this is exactly what happens. There have been multiple 80%+ declines from peak to trough over the years.
> elaborate pyramid scheme
Having been in the industry since 2011, I have heard this sentiment since day one. Also tulips.
>I'm not a Bitcoin expert, but I don't see how anyone can view Bitcoin...
As a self-admitted non-expert, these initial observations might make sense. Become an expert and you will see differently. (It took me about two years to understand Bitcoin)
It also took some time to understand the cypherpunk roots of Bitcoin.
A blockchain without a peer to peer/decentralized network and a crypto currency/incentive system is nothing more than an over-architected centralized database.
The trust provided by using a blockchain is based mostly on the incentive for people to secure the network. Sure you can use hashing and encryption to verify transactions without it, but if it is a private chain, then one person with access can perform a 51% attack and alter all of the transactions. That is the exact thing something like Bitcoin is trying to prevent.
I agree that Bitcoin itself may not end up being the final coin that survives in 5 or 10 or 20 years, but it has the first mover advantage and strong brand recognition, and I don’t see that changing anytime soon.