Monday, January 06, 2014

The Intersection of HYIP and Bitcoin

It's been a while since any high-yield investment program (HYIP) popped up on my radar.  Checking my Twitter feed for retweets reveals that some of the "accounts" retweeting the same news items I read also tweet about HYIP schemes.  HYIPs typically promise astronomical rates of return on investments that are simply impossible to obtain with normal assets.  Social media is an easy way for HYIP promoters to prey on unsuspecting investors.  The SEC knows that these schemes are baloney and has noted the signs of such prime bank frauds.  I've noted some confluence of HYIP and another hi-tech baloney idea . . . Bitcoin.

Consider the obvious similarities.  HYIP and Bitcoin both appeal to low-information segments of the population that don't understand conventional investment concepts like compound interest or collateral.  Both heavily rely on social network channels where "true believers" congregate and skeptics are either ridiculed or banned.  Enthusiasts for HYIP are unable to explain how the underlying program generates gains.  Reading chatter on several Bitcoin forums shows me that crypto-nerds show a similar inability to explain whether the concept is an asset, a currency, or something else.

These two schemes are now beginning to populate each other's worlds.  A Google search for "Bitcoin HYIP" reveals that some HYIP sites are accepting Bitcoin payment, and Bitcoin talk forums are discussing HYIPs.  I noted that some people on the Bitcoin forums point out the Ponzi nature of HYIPs without any irony about their own crypto-currency.  I think some HYIP promoters who take Bitcoin payments are in for a taste of their own medicine once they try to cash out.  Every attempt to sell a large Bitcoin block crashes that market, and a bunch of HYIP scammers doing it in sequence will be hilarious.  It will be even more hilarious when the dumbest Bitcoin owners start investing their precious digits in HYIP just to cash out themselves.

If you need proof of just how attractive these two communities are to each other, I give you the screen capture below from one of the sites that popped up in my Google search.

Read the nonsense in those paragraphs if you need some amusement.  The elementary due diligence required to see through Bitcoin is beyond the ability of its promoters.  HYIP promoters share the same weakness.  That's precisely why they appeal to one another.  I don't know of any precedent in the history of finance when two separate communities of idiots and scammers combined to prey upon each other.  HYIP and Bitcoin are about to make history.  I'm going to enjoy watching law enforcement and security regulators take them all down.

The illusion that this nonsensical non-currency called Bitcoin can gain value in interest-bearing accounts takes stupidity to a whole new level.  That's why it migrates to non-investment accounts in HYIP scams and not to conventional accounts in banks or brokerages.  We've all seen this story before when E-gold allowed aspiring bullion traders to create huge digital trading accounts backed by very little gold.  That ended badly when the system's operators proved unable to bring their concept into compliance with money transmission regulations and could not police their system to eliminate fraudsters and hackers.  Bitcoin's backers are unable to see the similarities in their own schemes.  That will prove to be Bitcoin's undoing.  The penetration of HYIP scams into the Bitcoin community will accelerate that day of reckoning.