The crypto pyramid scheme

Is crypto a pyramid scheme?

No, crypto by itself is definitely not a pyramid scheme.

The crypto ecosystem consists of different elements; blockchain platforms, trading platforms, crypto projects and crypto coins are some of them.

While certain specific elements have characteristics that follows the patterns of a pyramid scheme, labeling the whole ecosystem as a pyramid scheme is definitely incorrect.

This theory is known as “The Great Fool Theory”

Why do some people think crypto is a pyramid scheme?

When people discuss if crypto is a pyramid scheme, they often refer to specific crypto projects such as Dogecoin (DOGE), Shiba Inu Coin (SHIB) and similar dog coins. Some of these crypto coins are not compatible with other crypto coins from a technical perspective. Still, they have seen explosive growth. Where these coins are comparable to a pyramid scheme is the fact that the existing owners of them benefit financially from others adopting and investing in the coin.

As more and more people purchase the coins, the prices pumps up to extremes. Some coins have seen growths up to 5,000% in 30 days. Therefore, Since many people believe that these crypto coins have no real use case, the risk is that the established owners, originally advocating for the crypto coins, will cash out. This can make the prices plummet leaving the newest investors – in the bottom of the pyramid – with a loss.

This theory is known as “The Great Fool Theory”. Though demining the idea is that you purchase something cheap and try to find “a greater fool” that will purchase the asset from you at a higher price. Eventually someone is stuck with the unusual asset. The same concern is being discussed in relation to the NFT-market and the stock market with stocks as AMC and Gamestop.

The crypto pyramid scheme

Here are some elements that are comparable to a pyramid scheme:

  • The initial promoters benefit from recruiting investors.
  • Recruiting new investors is the only way for investors to earn back their investment.
  • The business model is to grow the marked value through an ever-increasing number of investors.
  • If new investors stop coming, the last investors will lose their investments.

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