Bitcoin is the world’s first autonomous and self-sustaining pyramid scheme.

Two types of assets

1. Type A assets can only provide a return to their current holder if a stream of subsequent investors, buyers, or participants are recruited to provide that return.
2. Type B assets, on the other hand, can provide a return to their owner, even if no subsequent person ever steps forward to acquire that asset. Good examples of Type B assets are gold, land, stocks, and central bank-issued banknotes.

What if…A buyer’s strike suddenly hits the market for a Type B asset.

Everyone decides to sell at the same moment so that the asset is offered at $0. An arbitrage opportunity presents itself. Since this asset will either yield a dividend (in the case of a stock), have some usage in decorating and/or conducive properties used in electronics (gold), or is destined to be repurchased by its issuer at some positive price (central banks withdrawing banknotes by selling assets), anyone who buys it for $0 is getting something for nothing. As people compete to feast on this free lunch, prices will re-ratchet back up until the opportunity has disappeared.

Type B assets are characterized by price floors and buyers strikes are not crippling

No equivalent arbitrage opportunity presents itself when a buyer’s strike hits a Type A asset. Say Bernie Madoff issues a bunch of tickets, each providing its holder with a spot in a Ponzi scheme. A few days later, no one wants to purchase Madoff’s tickets.

You can now buy a ticket for $0, but because they have no intrinsic value the only way you’ll be able to come out ahead is by selling it for more to another buyer. This requires that you convert already angry sellers into buyers. This sounds like an awful lot of work, certainly too much to merit paying anything more than $0.

It’s probably better to start an entirely new Type A asset than try to reboot the failed one.

The upshot is that because Type A assets lack an arbitrage mechanism and marketing is costly, buyer’s strikes quickly bring the game to an end. There is no floor.

Bitcoin is a Type A asset

Like other Type A assets, bitcoin lacks a price floor. When a bitcoin buyer’s strike hits, and bids across all the bitcoin exchanges evaporate, a bitcoin held in your wallet is worthless. There is no underlying business that can throw off dividends nor a central issuer that can cancel unwanted tokens. Sure, you can always purchase a bitcoin for $0, but in order to come out ahead you’ll have to convince someone to buy it for $1. 

Bitcoin needs a constant stream of new buyers to its cause

In bitcoin’s case, recruitment has been easy. No Ponzi scheme ever boasted as engaging a mythology as bitcoin, starring the dashing and mysterious Satoshi Nakamoto. 

The mythology is strong

Satoshi Nakamoto, he/she is almost ten years older, and one of the core promises of the mythology, the birth of a generally-accepted digital currency, has fallen flat. People are getting jaded.

Luckily, Bitcoin has always had a far more seductive recruiting tool, a rapidly rising price. While the technology and philosophy underlying bitcoin might motivate a few geeks, a 5000% price jump is a universal intoxicant. Past returns bring the promise of future returns.

The bigger bitcoin gets, the larger the stream of recruits needed to drive the price higher

At some point its market capitalization will get so large that the population of buyers necessary to keep the ball rolling will be exhausted. 

There are no Ponzi or pyramid schemes still running from the 1800s, or the 1920s, or even from 2001. And so bitcoin goes?

The End?

Huge h/tips to David Koening from whom i snatched this post and to the folks at angiom AI who let me play with its editor