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Bitcoin is a pyramid scheme, economist says

It’s been a rollercoaster couple of years for cryptocurrencies, but 2019 has been a fruitful one for Bitcoin holders. The value of one Bitcoin rose more than 85% since January 1, placing it among the some of the year’s top performing financial assets. In fact, a recent report from Bank of America names Bitcoin the single best investment of the last decade.

But despite its successes, many critics still advise against putting your money into Bitcoin.

“It’s a pyramid scheme,” LendingTree Chief Economist Tendayi Kapfidze tells Yahoo Finance. “You only make money based on people who enter after you.

“It has no real utility in the world. They’ve been trying to create a utility for it for ten years now. It’s a solution in search of a problem and it still hasn’t found a problem to solve.”

 Bitcoin Max Chart
Bitcoin Max Chart

Crypto hardliners point to an environment that has evolved favorably since digital currencies hit the mainstream. Since Bitcoin’s parabolic rise in early 2017, we’ve seen cryptocurrency adoption within some of the world’s largest financial institutions. Even central banks have taken the first steps toward implementing their own digital currencies.

Still, experts say, investing in crypto as an asset class is purely speculative.

“I own several cryptocurrencies. I got into them in late 2016 and early 2017. I bought them equal weights with a specific thought: ‘there’s something here, I just don’t know what it is,’” says Bruderman Asset Management Chief Market Strategist Oliver Pursche.

“I own five... if I’m lucky one of them will become an all-star.”

Pursche says he invested in cryptocurrency not only to grow his portfolio, but also to learn about the technology behind the blockchain.

“I don't think you go into it thinking that you're going to become a billionaire or a millionaire as a result of it. You go into it very soberly understanding that you can lose all of your principle and that this is purely speculative,” he told Yahoo Finance.

“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.”


Nick Rose is a producer for Yahoo Finance.

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