Icelandic Central Bank Warns Against “Bitcoin Pyramid Scheme”

The governor of the Icelandic Central Bank yesterday repeated his warning against investing in Bitcoin, likening activity around the cryptocurrency to a pyramid scheme.

Ásgeir Jónsson made the comments on Icelandic radio station Bylgjan, echoing the warnings made by the bank last month. The governor is particularly concerned about individual Icelanders speculating on the value of Bitcoin, making risky investments in a highly volatile commodity of obscure origin, according to Vísir.

“When you hear that people are buying these coins to try to profit from it, you start to worry,” Ásgeir told Bylgian. “I warn against all speculation, and we are talking about a very strange property. It is one thing to buy shares in a company, or a bond issued by a party that has actual operations and revenue streams. Here people are just betting on the value of a currency rising, and this looks to me a bit like a pyramid scheme.”

Criminal connections and ecological concerns

In addition to the high level of risk for investors, the governor highlighted concerns that Bitcoin transactions are frequently used as part of criminal transactions. The creation and trading in the virtual currency also requires huge amounts of computational equipment and electrical power. An estimated 4.5% of the electricity consumed in Iceland is used solely to support this activity.

The Icelandic Blockchain Foundation—which exists to promote cryptocurrencies—tried to encourage greater confidence in Bitcoin last month. However, last week the value of bitcoin fell sharply after Elon Musk—a high-profile investor in the cryptocurrency—tweeted that the price of bitcoin did “seem a bit high lol.”

The bank’s view that Bitcoin is an unstable investment was supported by Gylfi Magnússon—professor at the University of Iceland’s School of Business—in a recent interview with Kjarninn. His view is that investors are engaging in a risky business.

“Those who bring money in during the final part of a bubble rise come out the worst. The average investor will lose a significant portion of their investment because the overall value creation is not zero, but negative due to the cost of mining,” Gylfi said.

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