Bitcoin: The World’s Largest Decentralized Pyramid Scheme.

Photo by Marc Sendra Martorell on Unsplash


Bitcoin fails as an inflation hedge or safe haven. Bitcoin trades like a highly leveraged risk asset and its price volatility has failed to noticeably decline overtime.

Bitcoin fails as a currency. The vast majority of Bitcoin is used for financial speculation not in merchant transactions.

Bitcoin’s religious appeal to libertarians and promotion as an alternative store of value to gold is clever but deceptive marketing.

Bitcoin’s deceptive marketing, lack of utility, and mostly speculative use resembles a pyramid scheme or chain letter more than a successful currency or prudent investment.

What is Bitcoin?

Why Bitcoin Resembles a Pyramid Scheme

Pyramid Scheme:

Alike the above model, early Bitcoin adopters and miners stand to profit by selling their low cost basis tokens to new participants. Collectively, institutions, financial media, libertarians, and retail investors have marketed Bitcoin to new buyers to bailout their existing investment in a token with an intrinsic value of exactly 0. Alike common pyramid schemes, the product or investment fails independently and is dependent on either new seller recruitment or capital inflows. Bitcoin’s price has risen substantially over the past 24 months and this price appreciation may comfort investors who suffer from recency bias into thinking that there is some support level at which Bitcoin will hold. Furthermore, a stunning level of survivorship bias exhibited by retail investors in particular plays directly into Bitcoin’s pyramid marketing model; implying that Bitcoin is marketed to the investing public as a get-rich-quick scheme masquerading as a decentralized currency and inflation hedge.

For a currency to be successful it must have (4) key attributes:

1. It must be an effective unit of account.

2. It must be an effective medium of delayed payment (lending).

3. It must be an effective store of value.

4. It must be a medium of exchange.

These four factors are what determine the viability of Bitcoin’s use-case. If Bitcoin can’t fulfill all four factors then its utility is restricted to illegal transactions and raw price speculation. Ironically, there are other crypto tokens that are more effective at maintaining privacy and providing safe harbor for illegal transactions than Bitcoin. And as a tool for price speculation, Bitcoin competes with thousands of other worthless crypto tokens and meme stonks for the attention of gambling addicts. Let’s first analyze Bitcoin’s utility as a currency.

Is Bitcoin an ideal Unit of Account?

Lack of Regulation

Are Bitcoin Denominated Loans Practical?

Is Bitcoin a Store of Value?

Bitcoin is a Zero Sum Game

Source: Nassim Nicholas Taleb, NYU: Bitcoin, Currencies, and Fragility.

Is Bitcoin a Competitive Medium of Exchange?

Bitcoin transactions per second:

The Bitcoin network also generates significant negative externalities surrounding the energy use of miners. Bulls argue that as the network grows, transaction costs will fall, the scalability problem will be solved, and energy use will be more in-line with traditional payment forms. However, this is speculation and totally dependent on heavy adoption by the public for use in merchant transactions which has largely failed. Fewer Bitcoins are used in merchant transactions today than in 2017 and the vast majority of Bitcoin’s economic activity is restricted to trading and speculation through exchanges. Bulls like to compare Bitcoin to the growth of the Internet or e-commerce, but at no point in the history of these new industries did growth stop for multiple years. Bitcoin can be used in transactions, however it competes with 10,000+ other cryptos trying to absorb market cap by promising greater scalability, lower costs, and more privacy. In this regard, Bitcoin doesn’t have a first mover advantage, it has a first mover disadvantage relative to other crypto projects. The bottom line is that the vast majority of crypto investors are buying Bitcoin to get rich, not for practical use as a currency.

Since Bitcoin fails at all (4) attributes of being a successful currency, it must represent something else entirely. Its popularity and spectacular price appreciation is not reflective of the token’s underlying value as a currency (which is zero), but as an instrument of financial speculation in a zero-sum game where participants are encouraged to recruit new laser-eyed believers into the community. Although participants don’t generally directly recruit new investors to help them totally cash out of their existing coins as participants do in a Multi-Level-Marketing scheme; more capital inflows creates higher prices and ultimately the potential for early investors to realize capital gains by selling to a greater fool.

Is Bitcoin an Inflation Hedge?

The Significance of Utility

Every Pyramid Scheme has a Network Effect

Bitcoin is a Risk Asset

Not only is Bitcoin not an inflation hedge, but as a high beta, risk asset, it fails to offer any safe haven attributes. Bulls like to compare bitcoin to gold’s safe haven reputation, but when faced with any significant market pressures, a 13 year-old Bitcoin has repeatedly failed to maintain price stability. Objectively, Bitcoin is a joke when compared to gold’s 2,000 plus year history of adequately providing investors a safe haven from geopolitical and monetary turmoil. During March of 2020, Bitcoin fell by more than the broader stock market. There is ultimately no evidence suggesting that Bitcoin can protect investors from any black swan, monetary, or geopolitical risks.

“Institutional Adoption”

Institutions are buying Bitcoin hoping to profit from their own recency bias. If Bitcoin is at $40,000 or $5,000, nothing fundamentally has changed, only its price accounting for a rise or decline in quantity demanded and change in investor perception. Bitcoin’s intrinsic value of zero is the only constant. The only attractive feature Bitcoin has is that of every get rich quick scheme of the past: the promise of high returns with limited risk. A higher Bitcoin price accomplishes this and creates a self-fulfilling cycle of more media coverage, more buyers, and a higher price. Like every bubble, this party inevitably ends as eventually Bitcoin promoters and their media infrastructure fail to rope in enough new buyers to sustain current prices as their cultish message becomes oversaturated in the financial media. The promoters like to say that by buying Bitcoin you are, “getting in on the ground floor of a monetary revolution,” or some derivative of that. Are you really getting in on the ground floor? I have yet to meet an investor who hasn’t heard of Bitcoin. Like any bubble, the price weakens when promoters run out of greater fools to sell their Bitcoin to. When this happens, the Bitcoin ecosystem will crumble as the market discovers that the Hodlers and “diamond hands club” is much smaller than previously thought. Institutions have no loyalty to Bitcoin’s libertarian cause and will not hesitate to cut losses when Bitcoin inevitably loses its popularity.

Bulls claim that in the three 70%+ declines Bitcoin has faced over its short history (this by itself is significant), Bitcoin has recovered to higher levels again and there is no reason why it won’t do so again. This flawed logic is extremely dangerous. “Past performance is not indicative of future return” holds true throughout time. Bitcoin may or may not be able to replicate its price appreciation going forward, however it will inevitably move closer to its intrinsic value of 0 overtime.

Bitcoin Marketing

A telling sign is that whenever Bitcoin prices stagnate or fall, promoters become even more radical and aggressive in their sales tactics. The drunken sailor, Micheal Saylor, CEO of MicroStrategy, a leveraged Bitcoin holding company has told investors to,

Once you know how it all ends, the only use of time is…how do I buy more bitcoin? But take all your money and buy bitcoin. Then take all your time, figure out how to borrow more money to buy more bitcoin. Then take all your time and figure out what you can sell to buy bitcoin. And if you absolutely love the thing, that you don’t want to sell it, go mortgage your house and buy bitcoin with it. And if you’ve got a business that you love because your family works for the business and it’s in your family for 37 years, and you can’t bear to sell it, mortgage it, finance it, and convert the proceeds into the hardest money on earth, which is bitcoin.

Micheal Saylor, CEO MicroStrategy 2021

This obviously unethical and shameless promotion by Bitcoin “Maximalists” like Saylor has become common and is a vital part of the marketing infrastructure necessary to prop up the world’s largest decentralized pyramid scheme.


Unlike traditional pyramid or chain letter schemes, Bitcoin has no central promoter, there is no single operator like a Madoff. Instead, the marketing and recruitment of new investors is decentralized and occurs naturally as early investors are incentivized to convince greater fools to pay higher prices for outstanding Bitcoins. This is a redistribution of wealth from the investing public to early miners and investors the same way old investors profit from the entrance of new investors in a classic pyramid scheme.

Bitcoin vs.

The Danger in Hodling

The only opportunity in Bitcoin is the opportunity to sell to a greater fool.

Bitcoin like and all pyramid schemes promoting investments or products with no utility will inevitably collapse.

If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.

Warren Buffet

Disclaimer: the author Kevin Habek is not a registered financial advisor. This article constitutes the opinion of the author and should not be misconstrued as financial or investment advice. Cryptocurrency speculation is highly risky and investors employing these investment strategies run the risk of losing all or more than their original invested principal. The author recommends readers perform their own research and due diligence and consult with a qualified investment professional before entering into any investments. The article in reference: “Bitcoin: The World’s Largest Decentralized Pyramid Scheme.” by Kevin Habek, is designed for entertainment and informational purposes only. The author holds no position in any of the mentioned securities and does not intend to enter into any positions in these securities within the next 72 hours.



I enjoy breaking down financial and economic trends.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store