Bitcoin 2022 Miami: Mike Novogratz likens BTC holdings to pyramid scheme

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On day two of the Bitcoin 2022 conference in Miami, Mike Novogratz, the CEO of Galaxy Investment Partners, the digital currency investment firm with over $3 billion AUM, gave the final keynote speech of the day.

It was a presentation I was looking forward to. Novogratz is well-known in the banking and finance world, and I thought that someone with as much experience as him would come to the stage and add something new to the conversation about digital assets—but he didn’t. 

What did he say?

After hitting the usual messaging points such as “BTC gives you sovereignty” and “BTC is digital gold,” Novogratz told the audience:

“I come from a long line of storytellers, I was a macro investor my whole life, we try to see around corners, we try to understand the trends of the world, put big bets on them, and then tell stories, so my role has been telling stories–trying to pull people into the tent… and as more people get comfortable, the tent grows and fills–I look at the tent today, and it’s double the size of last year… If we keep growing at this pace… watch out!”

https://www.youtube.com/watch?v=A_-OHiLFXC4&t=242s

What Novogratz did on stage was describe how a pyramid scheme works. A pyramid scheme is a “business model that recruits members via a promise of payments or services for enrolling others into the scheme,” where “New recruits make up the base of the pyramid and provide the funding, or so-called returns, in the form of new money outlays to the earlier investors/recruits structured above them in the scheme. A pyramid scheme does not usually involve the selling of products. Rather, it relies on the constant inflow of money from additional investors that works its way to the top of the pyramid,” according to Investopedia.

Novogratz told the audience that BTC was a tent (pyramid) and that he and the audience have a job to get as many people into the tent (pyramid) as possible so that the tent (pyramid) could grow (the price of BTC increases).

In other words, Novogratz told the audience that those that are at or near the top of the pyramid, even if it’s just relative to those who entered the pyramid later than they did, can increase their wealth thanks to those that chronologically entered later because the group that enters “late” increases the liquidity (total amount of money) in the pool while reducing the supply of available units (BTC) in the pool. This ultimately makes the underlying asset price (BTC) more expensive than before people entered the pyramid.

What is BTC?

A speculative vehicle. Unfortunately, Novogratz’s keynote was in-line with the other messages and business models being propagated at the Bitcoin 2022 conference: that the best BTC use case is speculation. Because BTC is technologically restricted by its block size and transaction throughput, enterprises and governments can not use the BTC blockchain to build business solutions and consumer-facing applications. As a result, most businesses looking to leverage the BTC blockchain provide services around BTC that let end users speculate and safeguard their speculations (coins and tokens).

If a blockchain does not have real utility on its network, it probably does not have a sustainable future. Once new people stop coming into the tent, and those at the top of the pyramid sell their bags for a sizable profit, what will happen to BTC?

Check out the teaser for the BSV Global Blockchain Convention: