Is Bitcoin an investment or a trap? Analyzing the virtual currency controversy from the perspective of Ponzi scheme definitions

Scholar Voices Spark New Wave of Discussion

Recently, a professor from NTU’s Department of Finance and Economics posted on social media, directly claiming that investing in Bitcoin could become an accomplice to scams, equating it with Ponzi schemes. At the same time, a well-known trader also suggested that the significant decline in Bitcoin in October might be related to the Prince Group case. These remarks have attracted widespread market attention and prompted us to delve deeper: what exactly is a true Ponzi scheme? Does Bitcoin meet its definition?

What Is the Official Definition of a Ponzi Scheme?

According to the clear definition by the U.S. Securities and Exchange Commission(SEC), a Ponzi scheme is fundamentally a form of investment fraud. Its operational logic is: using funds from later investors to pay earlier investors, creating a false illusion of profits.

Ponzi schemes typically have the following characteristics:

Promise high returns with extremely low risk — scammers claim they can provide stable and high investment returns with almost zero risk

Overly consistent returns — regardless of market fluctuations, the investment always maintains stable positive returns, which is a major red flag

Lack of transparency — employing secretive or complex strategies, making it difficult for investors to understand the flow of funds

Lack of regulation — unregistered investment products, unlicensed salespeople

Difficulty in withdrawals — when investors try to withdraw funds, mechanisms often malfunction

Document issues — account statements frequently contain errors, implying funds are not invested as promised

The reason Ponzi schemes inevitably collapse is that they rely on a continuous influx of new funds. If recruiting new investors becomes difficult or many existing investors withdraw simultaneously, the entire system can disintegrate instantly.

Is Bitcoin a Ponzi Scheme? Four Key Differences

Fundamental difference between promise and reality

When Satoshi Nakamoto created Bitcoin, he never promised any investment returns. In fact, the Bitcoin white paper discusses technical architecture, decentralization, monetary policy, and academic topics, not investment guarantees. Early Bitcoin was known for extreme volatility; any claims of “stable high returns” are based on individual market analysis or trader judgment, unrelated to Bitcoin itself.

You wouldn’t think that because someone predicts Apple stock will rise to 500 yuan by year-end, Steve Jobs is running a Ponzi scheme, right? The same logic applies to Bitcoin.

Transparency and open-source revolution

The core feature of Bitcoin is its open-source nature. All code is publicly available online for review, and anyone can run a full node to verify the blockchain’s integrity and transaction records. No centralized black box authority can secretly alter code or falsify data.

This is the complete opposite of typical Ponzi schemes’ secrecy. Bitcoin’s transparency means:

• Everyone can freely verify the total supply (limit of 21 million coins)
• Transaction records are immutable; all fund flows are on-chain and traceable
• No one can secretly misappropriate funds or produce false reports

While risks exist in the crypto ecosystem—such as user mismanagement, exchange hacking, or scams involving private keys—these are human errors or external factors, not inherent flaws in Bitcoin itself.

Fair distribution mechanism

Satoshi Nakamoto mined coins together with others after releasing the software, without reserving any special mining advantage. In contrast, many later cryptocurrencies adopted “pre-mining,” reserving large token amounts for teams and early investors. For example, Ethereum pre-allocated 72 million coins to developers and early investors before mainnet launch.

Bitcoin employs a truly decentralized model: Satoshi only operated for two years after creation and then stepped back, leaving development to the open-source community. No single entity has absolute control over its development. This feature makes Bitcoin one of the few digital assets that can thrive without centralized leadership.

Regulatory-Recognized Transition

In its early days, Bitcoin faced many uncertainties: unregistered, high risk, requiring substantial technical and economic knowledge. But these features alone do not constitute a Ponzi scheme.

The situation has changed dramatically. The U.S. has approved multiple Bitcoin ETFs, and major financial institutions like Fidelity and JPMorgan are actively exploring Bitcoin applications. The U.S. government has even established a “Strategic Bitcoin Reserve,” and compliant exchanges like Coinbase offer channels for public purchase.

These developments show Bitcoin has transitioned from a fringe asset to a mainstream investment tool, officially recognized by top financial institutions and governments.

Bitcoin and Gold: Applying the Same Logic

Some attempt to attack Bitcoin using the concept of “broad Ponzi schemes,” claiming it relies on a growing investor base to sustain prices. But by the same logic, gold—a commodity with a 5,000-year history—could also be called a Ponzi scheme.

Gold does not generate cash flow or dividends; its value depends entirely on others’ willingness to pay for it. Its status as a store of wealth stems purely from human consensus and network effects. Gold’s annual supply growth is about 1.5%, and its scarcity maintains long-term value.

Bitcoin is highly similar to gold in this regard:

• Fixed total supply (limit of 21 million coins, over 18.5 million mined)
• The halving mechanism every four years ensures predictable supply
• Possesses scarcity, divisibility, and fungibility
• Value is based on market consensus, not intrinsic cash flow

If gold isn’t a Ponzi scheme, neither is Bitcoin. Both are monetary commodities whose utility lies in storing and transferring value.

The True Ponzi Scheme: The Banking System Itself?

From the broadest definition of a Ponzi scheme, the global banking system actually exhibits some Ponzi-like features.

Banks operate under fractional reserve banking(fractional-reserve banking): they collect deposits and lend out most of the funds or buy securities, keeping only a fraction as reserves. In the U.S., the total reserve ratio is about 20%. This means if 20% of depositors withdraw cash simultaneously, the system would collapse immediately.

In early 2020, during the initial COVID-19 outbreak, U.S. banks faced a situation where they couldn’t meet withdrawal demands. This is a red flag for Ponzi schemes—difficulty in withdrawals.

The operation of the banking system is akin to a musical chairs game: the number of creditors(creditors) far exceeds the number of chairs(actual cash). When the music stops(a crisis occurs), some will be unable to get a chair(unable to withdraw).

The system has not yet collapsed on a large scale because of government and central bank support. During crises, central banks print new money to buy assets and restore liquidity, but this only delays the problem—the long-term result is a continuous decline in fiat currency’s purchasing power.

In contrast, Bitcoin’s design is entirely different: no central authority can “rescue” or manipulate its supply. All rules are embedded in code and cannot be changed.

The Truth About Money Laundering: Cash Is Still King

Some claim that scam groups mainly launder money through Bitcoin. But SWIFT’s research report directly refutes this: the vast majority of money laundering still occurs via traditional cash, with cryptocurrency use being minimal.

The tools themselves are neutral. Doctors use knives to save lives; criminals use knives to harm. We don’t say knives are inherently evil. Bitcoin, while offering some anonymity, records all transactions permanently on-chain, accessible for law enforcement to trace. In contrast, cash—the oldest payment method—remains the preferred tool for laundering money.

Prince Group Case: Market Panic or Technical Flaw?

Regarding whether Bitcoin’s sharp decline in October was due to the Prince Group case, this conclusion requires more cautious analysis.

The U.S. government did seize 127,000 BTC from the Prince Group, valued at about NT$340 billion at the time. But the key fact is: this transfer occurred as early as 2020; it was only in October that the U.S. Department of Justice officially announced the seizure, linking the two events in media reports.

More importantly, the root cause of the theft wasn’t Bitcoin being cracked but the use of a flawed pseudo-random number generator(PRNG) in mining pools, which led to private keys that weren’t truly random. These wallets’ private keys could be mathematically derived. U.S. law enforcement identified these weak key addresses to crack the wallets.

The core issue lies in the poor security practices of the mining pools, not in Bitcoin’s design itself.

Furthermore, is the government seizing the scammer’s Bitcoin a bad thing for the price? Actually, the U.S. has established a “Strategic Bitcoin Reserve” through administrative orders, managing the seized Bitcoin as national assets. From another perspective, the government’s seizure effectively “locks” these coins, reducing circulating supply in the market.

Conclusion

Simply defining Bitcoin as a Ponzi scheme ignores its fundamental differences in technology, transparency, fair distribution, and regulatory recognition. Such a conclusion is not only illogical but also underestimates Bitcoin’s innovation as a decentralized monetary technology.

The real investment risk isn’t in Bitcoin itself but in user mismanagement, surrounding scams, or insufficient understanding of market volatility. The key to future Bitcoin investment is understanding its technical nature and market risks, not being misled by overly simplified accusations.