BTC is a Stock Market Amplified Ponzi: ZeMing Gao

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Michael Saylor recently took to the airwaves to discuss MicroStrategy’s (NASDAQ: MSTR) meteoric stock price rise.

In a CNBC interview, Saylor served a word salad of financial jargon to explain how the nearly 10x gain his company’s stock has experienced this year is justified.

Like many others, Bitcoin philosopher and author of ‘Bit & Coin – Merging Digitality and Physicality’ ZeMing Gao smelled a rat when listening to Saylor speak.

What Michael Saylor said is typical scam language. When you hold a large position on a volatile asset, it cuts both ways. For example, if one holds $10 billion worth of the asset, you make $500 million a day when the price goes up 5% on that day. But you also lose $500 million… https://t.co/7h6J7s3dWh

— Zem Gao (@zeminggao) November 22, 2024

Calling Saylor’s spiel “typical scam language,” Gao explained how volatile assets cut both ways. He highlighted how holding a $10 billion asset means you make $500 million a day when it moves up 5%, but you also lose that much when it goes down by the same amount.

Branding BTC a “Stock Market Amplified Ponzi (SMAP),” Gao warned that when it fails, it will do so spectacularly because there’s no economic value underpinning it. Its value is entirely based on mass psychology, circular logic, and some clever branding as digital gold.

Gao isn’t the only one to suspect Saylor is scheming

Saylor’s interviews, podcast appearances, and broadcasts often garner attention because of how intense and far out they are. At this point, it’s fair to say that even the most hardcore BTC maximalists are beginning to wonder if he might be delusional.

Yet, this interview drew more negative attention than usual on X and other social media platforms. While Saylor always has his unquestioning adherents, multiple large accounts called him out for what they view as a dangerous pump-and-dump scheme that could eventually hurt BTC, pointing out how it is now embedded in the traditional financial system and poses systemic risk.

MicroStrategy is a ticking time bomb.

They raise debt by selling equity & buy bitcoin.

What happens if BTC goes down, no one buys your bonds and there’s a discount not a premium on your equity?

Answer: You sell BTC to pay debt.

The question is when, not if. I guess 2026.

— Joe Ayoub (@Crypto_Joe10) November 25, 2024

Indeed, when all the fancy language and complex terms are removed, what Microstrategy’s meteoric rise comes down to is this: it borrows at current valuation, buys BTC, which pumps its value, which pumps its stock, which Saylor then borrows more against at new valuations to buy more BTC, ad infinitum.

This is obviously unsustainable. As Gao pointed out, it’s good going when the price is going up, but eventually, it will stop rising and begin falling, just as it has cyclically since its inception. When it does, MicroStrategy will lose billions daily, and its stock price will reflect that. Since it is now owned by pension funds, private portfolios, and institutional investors, the carnage could make the collapse of FTX look like child’s play.

An old theory to explain a new craze

The Theory of Reflexivity developed by legendary trader George Soros can help us predict what will happen to BTC and MicroStrategy. Reflexivity says that market participants’ thoughts about economic fundamentals impact prices, and the prices, in turn, impact their thoughts in a feedback loop. 

When prices rise, this leads to further optimistic assessments of fundamentals, leading to further rises in prices as people buy-in, and so on. This works positively until the top is reached, after which it works in reverse, and dropping prices leads to negative thoughts about fundamentals, which leads to prices falling further, which causes further gloomy forecasts and selling, etc.

Inevitably, BTC will top out for this cycle, and it will begin to fall. When it does, MicroStrategy stock will fall with it, and with the sort of leverage Saylor has used, there’s no telling how rapidly it could fall or how bad things could get.

BTC is not digital gold, and it never was

The truth is that Bitcoin is not digital gold, and it never was. Satoshi Nakamoto objected to the notion, saying the following in an early email exchange with Martti Malmi.

“Thanks for starting that topic on ASC, your understanding of bitcoin is spot on. Some of their responses were rather Neanderthal, although I guess they’re so used to being anti-fiat money that anything short of gold isn’t good enough. They concede that something is flammable, but argue that it’ll never burn because there’ll never be a spark.”

Nakamoto described Bitcoin as a peer-to-peer electronic cash system, repeatedly referred to how it could enable micropayments, and spoke about how there would be a vast number of transactions in blocks or none.

Yet, 15 years later, it seems most of the world has forgotten what Bitcoin was designed to be and has bought Saylor’s pitch hook, line, and sinker. Some of the best-known investors in the world and some of the world’s largest institutional investors have no understanding of Bitcoin mining economics, for if they did, they’d know that small blocks are doomed. Yet, they have invested countless billions in buying what is essentially a digital collectible.

Away from all this noise and irrational exuberance, the original Bitcoin lives on as BSV. It’s scaling to a million transactions per second with fees of a thousandth of a penny or less, and next-generation applications for supply chains, social media, and cybersecurity can be seen on the BSV blockchain today.

Michael Saylor and his investors will someday come into contact with economic reality. ZeMing Gao is right that it is not and never was digital gold and is currently functioning as something like a Ponzi scheme or a digital pyramid scheme, to be more exact. 

Wall Street never saw a bubble it didn’t like, and this time is no exception. There’s no telling how big this one can get, but the consequences will be biblical when it crashes.

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