by Joseph Young
Several conventional economists including Ann Pettifor are still pushing the “Bitcoin is criminal money” narrative with the sole intention of misleading the general public.
Pettifor Claims Bitcoin is a Ponzi
Pettifor firmly believes that bitcoin is a pyramid scheme. However, like many other conventional economists and analysts including Marathon Asset Management CEO Bruce Richards, she struggles to provide a viable reason to supplement her argument. For that, Pettifor was criticized for her inability to understand the structure of bitcoin, gold, and pyramid or Ponzi schemes.
The literal definition of a Ponzi scheme is a form of fraud wherein a nonexistent enterprise pays out early investors with the money invested by later investors, thus forming a structure of a pyramid. In other words, a criminal group obtains money from its investors and spends it for quick returns for the group itself and its early investors.
Within bitcoin, a nonexistent enterprise cannot exist due to its decentralized structure and architecture. The Bitcoin network was designed specifically to eliminate mediators when facilitating transactions between two people. Bitcoin as a peer to peer network cannot structurally have any mediators or network administrators.
When economists like Pettifor attribute bitcoin to a pyramid scheme, they make two fundamental errors in reasoning; treating bitcoin as a conventional commodity and failing to recognize the decentralized structure of bitcoin.
Non-factual accusations are usually led by a group of people that have the intention of misleading the public. In the case of Pettifor and Richards, this intention may stem from their responsibility of protecting their business models and operations, which revolve around the traditional monetary system.
Because bitcoin takes value away from the traditional monetary system by providing a new non-cash alternative to an international user base, so some economists like Pettifor panic and try to degrade bitcoin even with severely flawed arguments. Even if they realize that their arguments are not viable, they attempt to attack bitcoin regardless.
Pettifor was harshly criticized by both the bitcoin community and financial industry for her lack of understanding of bitcoin, gold and pyramid scheme. By attributing bitcoin to a pyramid scheme, and later describing gold as a pyramid scheme, Pettifor demonstrated her clear incompetence within the realm of finance.
Pettifor is a highly regarded economist who serves as a director of Policy Research in Macroeconomics. For anyone with an audience and clients that follow their decisions, it is important to base each argument against a legitimate asset, currency or commodity with logic.
Until 2014, when the legality of bitcoin was unclear in most markets, economists like Pettifor were excused from making irrational comments against bitcoin. However, in this period wherein the vast majority of governments and central banks including the Federal Reserve, the People’s Bank of China, and the Bank of Japan have already accepted bitcoin and legitimized it by providing regulatory frameworks, it is simply deceitful, unprofessional and dishonest to mislead the public with such statements.
Particularly, Richards, who described bitcoin as a Ponzi scheme on Bloomberg’s “Market Makers” and is frequently cited by Pettifor, also failed to provide a reason for his description of bitcoin as a fraud.
Dogmatic Ideologies and Ignorance Go Hand in Hand
One major reason behind the struggle of conventional economists in understanding bitcoin or any other innovative financial technologies to an extent is their heavy reliance on neoclassical economics. The basics or the foundation of Keynesian economics was adopted by neoclassical economics, which utilizes significantly outdated mathematical formulas and concepts in an attempt to understand the economy. The aversion to incorporate advances in other fields leads to a dogmatic view of the economy, with other schools of thought left to pick up the slack, such as the Austrian school, Econophysics, and the Post Keynesians.
However, with exponential growth or unexpected financial situations, it is impractical to rely on neoclassical economics. It is virtually not possible to utilize mathematical equations that were on the cutting edge of science over a century ago to study the economy, as the market is more like an organism, with ecology and complexity theory exerting a stronger influence on contemporary economic thought. Also, an ignorance or misunderstanding of computer science, and technology in general, may be why neoclassical economists fail to comprehend what bitcoin really is.
Unlike fiat money, the origin of bitcoin’s value comes from the market, from free markets involving supply and demand. Traders, investors, and participants in the ecosystem of Bitcoin determine its value, regardless of any external factors, internal decisions or dogmatic ideologies that some people may subscribe to.