See Dick. See Dick Call Bitcoin a Pyramid Scheme. Wrong, Dick. Wrong.

See Dick. See Dick Call Bitcoin a Pyramid Scheme. Wrong, Dick. Wrong.

In an interview with CNBC earlier Tuesday, former Wells Fargo CEO Richard ‘Dick’ Kovacevich denounced Bitcoin as a pyramid scheme.


First, it was economist Robert Schiller calling Bitcoin a “bubble”. Then JP Morgan CEO Jamie Dimon added his pontificating opinion to the mix, labeling it a “fraud.” Now it looks like Wall Street talking heads are doubling down on the stupid.

Yesterday, in an interview on CNBC’s Squawk on the Street, former Wells Fargo CEO Richard Kovacevich pronounced Bitcoin a pyramid scheme:

I think it’s a pyramid scheme. It makes no sense. I’m just surprised it isn’t even lower.

Bitcoin vs. Pyramid Scheme

To paraphrase a quote from one of my favorite movies, Mr. Kovacevich, you keep using that word (pyramid scheme). I do not think it means what you think it means.

Investopedia defines a pyramid scheme as:

A pyramid scheme is an illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, the earlier investors/recruits above them receive. A pyramid scheme does not 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.

It also notes that pyramid schemes are fraudulent because:

People are deceived into believing that by giving money, they will make more money; however, no wealth has been created, no product has been sold, no investment has been made, and no service has been provided.

Here’s where the wheels come off of Kovacevich’s argument:

1. Bitcoin is not based on recruiting. There is no funnel, no downline, no single fat cat at the top getting rich off of percentages of the investments of people under him or her.

2. Early Bitcoin investors, who could arguably be considered to be at the top of the investment food chain, aren’t realizing profits from the funds of investors who came after them. Any profits realized come from traditional investing strategies of early adoption, knowing when to hold and when to get out, and buying low and selling high.

3. When an investor buys bitcoin, they are doing one of two things:

Neither of these two use cases meets the definition of a pyramid scheme. In the former, something is being purchased, and in the latter, an investment is being made.

Why is the Old Guard so Resistant to Bitcoin?

Cryptocurrency is a new financial animal that doesn’t behave like anything that traditional finance experts have seen before. They don’t understand cryptocurrency, so rather than make an attempt to educate themselves, they criticize and denounce it out of hand. It doesn’t make sense to them, so naturally, it must be a fraud.

If you watch the video clip below, you can hear the confusion and exasperation when Kovacevich declares:

The fundamentals make no sense.

Even Warren Buffett, a legend in financial circles and vocal Bitcoin critic, admits his lack of understanding:

I get into enough trouble with things I think I know something about. […] Why in the world should I take a long or short position in something I don’t know anything about?

Personally, I think that a sense of elitism and fear of losing control are also at play to some degree. One of the greatest things about cryptocurrency is that it is open to everyone and controlled by no one. You don’t have to be rich to get into crypto and everybody has an equal chance of profiting (or losing) from their investments. It’s the great equalizer and I think it bugs the hell out of some of these guys that crypto investing lets “just anybody” in.

The moral of the story? Educate yourselves, be open to new ideas, and don’t be a Dick.

What do you think of Kovacevich’s claims? Why do *you* think so many mainstream financial experts are critical of Bitcoin? Let us know in the comments below.


Images courtesy of The Princess Bride/Twentieth Century Fox, sheilapic76/Flickr

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