Desperate Money: BitConnect And How to Talk About Ponzi Victims

I woke up this morning to the news that BitConnect, a cryptocurrency ‘investment’ platform widely accused of being a Ponzi scheme, had closed. The closure came after regulatory warnings from two U.S. states, but it also seems very reasonable to think the real cause was a liquidity crunch caused by a dramatic drop in the broader crypto market.  I want to consider how we talk about the victims of this, and other similar schemes, not all of which have bottomed out.

I should first acknowledge that I didn’t specifically have my eye on BitConnect, though I wrote about crypto ponzis and ICOs more generally for The Atlantic way back in May of last year. I don’t write about crypto full-time, so credit to those like Twitter user @bccponzi who are out there in the trenches.

And that’s the rub – there are a lot of trustworthy sources out there working, mostly without pay, to debunk the bad actors in cryptocurrency. A lot of response on Twitter today has made that point, celebrating the collapse of an apparently nefarious organization, and laying blame for individual losses squarely on those who ignored those warnings and were taken in by BitConnect.

Balancing that was a lot of empathy, though, which I think is justified in many specific cases, and as a general principle. There’s a very complex set of impulses, emotions, and cognitive patterns that drives people to put money into investments that are either known to be sketchy, or which they themselves just don’t understand. And I think a lot of it comes down to one crucial truth – this isn’t simply “dumb money.” It’s “desperate money.”

(I’m ripping this phrase off from another Twitter user whose comment I can’t find right now. If it surfaces, I’ll add an acknowledgment.)

“Desperate money” means people who are looking for a way out of a personal financial situation that’s either actively dire, or that just lacks any hope of really thriving. That obviously doesn’t just mean people who are desperately poor – the BitConnect collapse, and the broader crypto plunge, are already eliciting stories from people who had enough access to capital to lose a half-million dollars.

Instead, desperate money comes from those with no confidence in their ability to continue thriving – those with no real expertise, or skills, or enough capital to subsist on traditional investing returns. Desperate money is a mindset, one that free-market capitalism fosters in dozens of small and large ways. Without any sense of socially-guaranteed personal security, getting rich isn’t just a road to power, it’s the only way to avoid becoming a sad victim. Meanwhile, we’re pummeled with the mythology of wild success by a few – which Ponzi schemes obviously leverage directly by telling the ‘success’ stories of a core group of leaders and promoters, but which the culture itself generates in spades.

The people most likely to be influenced by this mix of fear and hope are those with the least leverage in the economy – older, less educated, or ethnic minorities. Here’s @bccponzi highlighting a BitConnect ad that targeted the elderly specifically.

Taking the lens a little wider, the excellent documentary Betting on Zero showed how Herbalife – which might not be a Ponzi proper but has decidedly questionable practices and rips off most of its agents – targets Latino and immigrant communities.

These are people who, I think it’s fair to say, are less likely to understand the complexities of cryptocurrency technology, or just of markets, period. Obviously that’s a broad brush, and race, age, or class background don’t have a direct correlation to how smart an investor you are. But at least in the U.S., and across most of the world, it’s simply a fact that we systematically under-educate the less privileged. And we under-educate everyone about finance.

There are definitely cases, then, where blame for ignorance can be laid at the feet of the individual. But as a society, we have to think about this lack of investment savvy as something we have a moral responsibility to mitigate, and further, as a systemic risk that endangers everyone. More specifically, cryptocurrency advocates need to look at ripped-off victims and see, not rubes who got their just deserts, but as a threat to what they’re trying to build.

The nature of cryptocurrency itself makes this all the more important. It’s very easy for people to buy in, which is often touted as a benefit, but also has obvious downsides. There’s a reason the U.S. has certain standards for accredited investors in high-risk ventures – it helps prevent things like the guy putting down a second mortgage on his house in the midst of a mania, and then losing it all. I don’t think there should be a push for that kind of accreditation for blockchain investors, but the lack of it is obviously a huge risk, both financially and reputationally, to the space as a whole.

This point should be of particular note to the many libertarians involved in crypto. I respect Erik Voorhees a great deal, but it disturbed me a bit when in a recent conversation he essentially said that all crypto investors are responsible for their own individual decisions on where and how to invest – even when they’re taken in by scams, which he doesn’t think should be subject to regulatory control. The importance of personal decision making and education is certainly true as far as it goes, but the libertarian-individualist mindset seems blind to the fact that a larger ecosystem creates the conditions for those individual decisions, and that some responsibility for those conditions lies with powerful individuals and the collective that influences that  ecosystem.

In other words, you have to hold both ideas in your head at the same time – victims of financial fraud, or just people who overextended their risk ratio and got burned, have made individual mistakes. They are also, at the same time, victims of broader problems that need to be tackled.

It’s clear that actors like @bccponzi and ezCoinAccess – who helped me with my writing about OneCoin – are working from that premise of collective responsibility. There’s no other rationale for working so hard to educate strangers. But unfortunately, the unfolding BitConnect fiasco, and the  durability of OneCoin, suggest that critical bloggers and tweeters just aren’t enough.

Like it or not, financial regulators are also representatives of a collective will to responsibility, and they have the muscle to do a lot more. They’re coming, and while they’ll definitely make things harder and perhaps less thrilling, those should be seen as a worthwhile tradeoff if there will be more protection for the weak. Willingness to make that tradeoff isn’t just a responsibility that comes with being strong – educated, healthy, wealthy, privileged. It is a defining element of what it means to be strong. If you don’t have enough power to give some up for your fellow human, how much do you really have?



One of my personal regrets is that when I wrote about Bitcoin Miami back in 2014, I didn’t name the person promising “5% returns on anything.” It was Dan Larimer, founder of BitShares and a co-founder of Steemit. I hope Dan has matured since then, and BitShares has evolved into something at least a bit less obviously scammy. The problem is that sort of rhetoric – overpromising on even legitimate projects, or making it seem like there’s no risk, just increases the broader risk of desperate money.


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