Finance Finance News Michael Pascoe: A Ponzi scheme is a Ponzi scheme, crypto or otherwise
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Michael Pascoe: A Ponzi scheme is a Ponzi scheme, crypto or otherwise

ponzi scheme crypto
The end of the ultra-cheap-money era will expose countless crypto ponzi schemes, writes Michael Pascoe. Photo: Getty
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A facet of the crashing crypto game (I really can’t call it a “market”) has reminded me of a journalistic failure a quarter of a century ago, a story that got away and ended up costing mugs millions of dollars.

A lesson from that failure was that a product that stinks is stinking for a good reason – there’s something putrid beneath it that will prove poisonous.

The current little stinker, in my opinion, is a crypto creature called Celsius Network. I hope, dear reader, you have no interest in it. Having zero knowledge of it is quite wise.

Celsius Network claims (or maybe claimed by the time you read this) to be a crypto lender with the ability to pay “depositors” a yield of “up to 18.63 per cent”.

Celsius also claimed to have assets of US$24 billion ($34.6 billion) in December – a figure that had halved by mid-May, the Financial Times reported, and would be substantially lower again now that it has had to suspend withdrawals and transfers.

Celsius was claiming a variety of high yields for various crypto deposits, but the “richest” was for a token called SNX. If you have nothing better to do, you could read (with a sack of pool salt) this recommendation for depositing SNX with Celsius, something supposedly “very easy, foolproof, and flexible”.

Yeah, sure. And I have a Harbour Bridge to sell you.

Celsius even claims (or claimed) to pay a yield of “up to 7.21 per cent” on a gold token, PAXG, which is supposed to be backed by physical gold.

Gold, as we greybeards know, is a metal that of itself does not earn interest. Physical gold is loaned at very low rates – nothing like 7 per cent.

So let’s just say it is “interesting” that someone can claim a token representing physical gold can deliver a high yield on a deposit.

Too good to be true

The Celsius pitch stinks. It represents the absurd levels to which the whole crypto bezzle has run, the game of imaginary value enjoying all the fun of the unregulated fair, hyped and psycho-babbled, pulling in the mugs until the music stops.

My earlier failure to pursue a Ponzi scheme was back in my Business Sunday days on the Nine Network. We heard about something called Wattle Group paying ridiculously high interest.

It was too good to be true – and you know what that means.

At the time, A Current Affair was occasionally doing stories on loan sharks. I rang a couple to check that they couldn’t achieve the sort of rates Wattle was claiming. They couldn’t.

So we flew up to Brisbane and tracked down Wattle’s front man, one Geoffrey Dexter. There wasn’t much doing at the registered office, so we tried door knocking, or at least gate-knocking Dexter.

The big yields came from bridging finance, Dexter explained. Developers caught short for a couple of months would pay plenty as it wasn’t much to them in the longer scheme of things.

Yeah, right.

We contacted the relevant Queensland authorities at the time – they had received no complaints and therefore could not act. Wattle had done nothing wrong.

Depositors were receiving the promised high yields and were happy.

So we did not have a story. Other stuff was happening, other stories needed telling and we didn’t want to accidentally promote something that stank. It went on the backburner.

Until it inevitably blew up. It was a straight Ponzi racket – fresh depositors’ money being used to pay the interest on the first lot.

It was being promoted by various conmen and a few fools. A couple went to jail – including Dexter – but that was after $160 million was blown by 2700 mugs, including quite a few AFP officers.

I have felt guilty about that ever since, about letting that one get away.

‘When the tide goes out’

As the crypto craze has blossomed and gone way over the top, when plenty of hucksters have been making claims that were too good to be true, or simply incomprehensible, Wattle comes to mind.

Vastly more than Wattle’s $160 million will be lost by the time the crypto dust settles.

This game has never made sense to me – I don’t sell drugs or credit card details on the dark web or hold companies’ IT systems to ransom so I have no need of Bitcoin or its sprogs. Years ago I likened the craze to collecting NRL player cards.

When you can’t accept the premise of the game’s starting point, you can’t deal with the numerous spinoffs such as Celsius.

Belatedly, you can voice disgust at politicians and regulators for failing to deal with the nonsense blossoming in plain sight, but that doesn’t help the mugs who have burned real money.

When the game was running hot, the mugs didn’t want to hear anything negative about it anyway. Some of our more gullible politicians thought it was all very exciting.

But as we come to the end of the “bubble of everything”, Warren Buffett’s great quote applies: “Only when the tide goes out do you discover who’s been swimming naked.”

Geoffrey Dexter copped a 10-year jail sentence. I’ll bet crypto con artists of vastly greater scale will escape court altogether.