Bitcoin Is A 'Pyramid Scam', Economist Warns

Bitcoin (BTC) has earned itself many names in its 11 years of existence -- a "scam," "rat poison," and "rat poison squared." That's all because its volatility that precipitated the manic bull run in 2017, which some have insisted as a bubble, has made those who have more of a traditional approach to investing skeptical.

Then again, there is not much to say about what the world's most popular crypto offers as an investment other than wait for the next person to buy it for a higher price. It doesn't produce anything and it's purely speculative. Lending Tree Chief Economist Tendayi Kapfidze even created a new moniker for it on Yahoo Finance: a pyramid scheme.

"It's a pyramid scheme," said Kapfidze. "You only make money based on people who enter after you."

While that statement is not without merit, it comes on the heels of BTC getting crowned as the investment of the decade by Bank of America Securities. The king of cryptos, since it was first traded in the market, accelerated 62,500%, according to Decrypt. This makes it the most profitable investment ahead of well-performing stocks in the 2010s like Netflix and Domino's Pizza.

BTC has, indeed, been an investment wildcard, but its purpose and the problem it is trying to solve is nowhere to be found, as Kapfidze pointed out.

Bitcoin was the brainchild of Satoshi Nakamoto to serve as a new form of money, one that's decentralized with a high stock-to-flow. But looking back on history, most representations of money had to fail first before a new one was introduced. In the case of fiat, it still works despite central banks speeding up their printing presses.

But merely the thought of fiat getting replaced or on the verge of collapse drove crowds to speculate that BTC is the next big thing, which it was in terms of price appreciation; but for serving its purpose, maybe not.

"It's a solution that's in search of a problem."

For Bruderman Asset Management Chief Market Strategist Oliver Pursche, his rationale for investing in cryptocurrencies is to get educated about the technology.

"For me, it's also a way to get educated on it... to me, if you want to learn about it, you've got to own it because that's the only way you're going to truly educate yourself and pay attention," said Pursche.