Bitconnect to Pepe: Lessons from Ponzi Coins and the Rise of Memecoins [91]

From notorious scams to the wild world of meme coins and high-risk degen trading, we trace the transformation of crypto, dissecting the underlying principles, the driving forces, and its meme-y future

One of the stories this week is about how the UK may start treating crypto less like financial markets and more like gambling, and that story caused me to scrap my original editorial for the week and go down a rabbit hole of the old ponzi coins that were well known and noteworthy from the ICO era. In the Scamcoin episode of Ask Doctor Bitcoin back in 2018, I spotlighted BitConnect and USI Tech, infamous examples of Ponzi schemes. Today, we revisit those old scams and draw parallels to the memecoins and degen trading of today, extracting valuable lessons along the way.

Revisiting the Scamcoin Episode: BitConnect and USI Tech

BitConnect and USI Tech were notorious for their high-yield investment programs, promising astronomical returns that turned out to be too good to be true. Glenn Arcaro, one of the leaders of BitConnect, was later ordered to pay over $17 million in restitution to approximately 800 victims from over 40 countries.

USI Tech, despite the controversy surrounding its founders Joao Severino and Ralf Gold, had its followers who swore by the returns they received from its Bitcoin packages.

However, by 2018, financial authorities worldwide had issued warnings or cease-and-desist orders against USI Tech, and the company eventually had to shut down operations in several countries, only to re-emerge under new guises: Eyeline Trading and WealthBoss.

The New Era: Meme Coins and Degen Trading

Fast forward to the present, and we have entered a different era - the era of meme coins and 'degen' (short for 'degenerate') trading. Meme coins gain traction through social media trends, and their value can skyrocket or plummet based on their popularity. 'Degen' trading, on the other hand, is all about high risk and high reward, requiring a high level of technical proficiency which insulates it from the casual investor.

Unpacking the Differences: Ponzi Coins and Meme Coins

While Ponzi coins and meme coins may appear similar due to their speculative nature, there are critical differences.

1. Guaranteed Returns vs Market-Driven Value: Ponzi coins promised guaranteed returns, often at unsustainably high rates. Meme coins, however, make no such promises. Their value is purely driven by market forces, making them highly volatile.

2. Community Aspect: While Ponzi schemes were primarily about financial gains, meme coins often revolve around a community, with supporters rallying behind a cause or idea.

3. Transparency: Ponzi schemes often involved deception and fraudulent practices. Meme coins and degen trading, by contrast, operate in the open. The coin's code, its transaction history, and other details are often publicly accessible, fostering a sense of transparency.

Navigating the Evolving Crypto Landscape

The Scamcoin Episode, during Season 1. The ICO era was wild, y’all.

The cryptocurrency market has evolved considerably since the days of BitConnect and USI Tech, but the element of risk remains a constant. Whether it's a Ponzi coin promising guaranteed returns or a meme coin riding a wave of social media hype, the need for investor education and caution is more critical than ever.

Lessons from the Ponzi schemes that I covered in my Scamcoin episode remind us that the allure of guaranteed returns often masks an unsustainable model that heavily relies on the influx of new investors. When it comes to meme coins and degen trading, the risks are different, yet still present. The value of these coins can be as unpredictable as social media trends and sentiment, and their extreme volatility can lead to significant losses.

Despite these risks, both Ponzi schemes and meme coins have provided opportunities for people to make money. As I pointed out in my Scamcoin episode, those who got in early and exited at the right time might have profited from Ponzi schemes. Similarly, meme coins have turned ordinary people into millionaires who were able to capitalize on a trend at the right time. However, these examples are outliers, not the norm, and the majority of participants in these types of investments end up losing money.

The Investor's Responsibility

The cryptocurrency landscape continues to evolve, but the principles of sound investing remain the same: diversify your portfolio, understand your risk tolerance, and never invest more than you can afford to lose. In the world of crypto, 'caveat emptor' – buyer beware – is a rule to live by.

The emergence of new types of cryptocurrencies, such as meme coins, and trading styles like degen trading, does not change the fact that careful research, due diligence, and sound judgment are crucial. These principles will guide you, whether you're navigating the turbulent waters of meme coins or any other investment.

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Blockchain Bulletin

• UK lawmaker report calls for crypto to be regulated like gambling. The UK Treasury Committee has recommended that cryptocurrencies be regulated as gambling, rather than financial services, due to their volatility and risks, reported CoinDesk.

• Ripple acquires digital asset custody provider Metaco in $250M deal. Ripple acquired Swiss digital asset custodian Metaco for $250 million to expand its enterprise offerings to include custody, issue and settle tokenized assets, reported Cointelegraph.

Blockchain Behind the Scenes

• HashKey in talks to raise $200M as Hong Kong becomes crypto hub. Digital assets and venture capital company HashKey is seeking up to $200 million in funding to capitalize on Hong Kong's emerging role as a crypto hub that could raise its valuation over $1 billion.