Macroscope | Why bitcoin is looking more like a pyramid scheme – and central banks must act
- ETFs greatly magnify the money that bitcoin can lure – as well as the financial risks. Regulation is urgent, as is the launch of stable central bank digital currencies such as the digital yuan
Bitcoin is looking more like a pyramid scheme every day since the recent launch of a US bitcoin exchange traded fund. ETFs have the potential to lure billions of dollars into bitcoin, allowing investors and speculators who got in at the bottom to get out at the top, before the pyramid collapses.
The market value of all the bitcoin mined so far, digital or physical, is estimated at around US$1 trillion. But the amount of money that bitcoin ETFs could attract, now that the world’s biggest equity market has given it a lead, could run into multiples of that amount if cryptomania persists.
This means that – in a reversal of Gresham’s Law that bad money drives out good – good money rushing into bitcoin via ETFs could replace the bad or quasi-money represented by bitcoin, and early investors could sell out, leaving the unfortunate others holding dross.
And, since the total number of bitcoin that can ever be produced is supposedly capped at 21 million, with just over 2 million left to be mined, ETF-fed demand for the cryptocurrency could soon outstrip supply, driving prices even higher.