Be Careful with Virtual Currencies!

The rapid appreciation in the value of the Bitcoin has left many people wondering how they can get onto the next big thing and perhaps get the same massive profits that some people have enjoyed with their Bitcoins. This has led to some people looking at some other currencies that do not have the same sort of controls that have seen it become so popular.

The idea that the continued and rapid appreciation of the Bitcoin means that all virtual currencies are going to have the same rapid rise is silly. The current price is unsustainable because the cost to generate new Bitcoins is now so much less that price you can sell Bitcoins for that every person that has the ability to ‘mine’ Bitcoins has jumped into the market. There will be oversupply in the near future and the same people that are fuelling this rapid rise will also cause a rapid reduction.

A classic case of using a virtual currency to offer a questionable arrangement is the Mavro. This ‘currency’ was thought up by Sergey Mavrodi, who is a colorful character that has a fascinating history. He sets the value of the Mavros twice a week and has so far increased the value by doubling it every month.

While this has been called a mutual aid fund it has a striking similarity to a classic pyramid scheme that promises huge returns but requires more and more people at the bottom of the pyramid. These new “mutual aiders” then put in funds that those at the top of the pyramid then are paid with.

The way this mutual aid fund is promoted is that you put in an amount and after a qualifying period you can withdraw your funds and any other funds that you require. This is clearly not sustainable and has no way to pay people once the majority have reached the qualifying period.

This scheme is called a Mavrodi Mondial Moneybox and it has not attracted regulatory investigations until recently because it is very careful to say that it is not an investment or a business. It presents itself as a mutual aid volunteer group that wants to end financial oppression. It claims to be at war with the banking industry and (presumable the US) federal reserve.

The MMM is being used by middlemen that are selling the ‘opportunity’ in many small towns across India. The middlemen do not highlight the risks and hard sell the speculative returns that they suggest is a certainty. This far from the website which uses an interesting way to convince you to pay into this ‘aid’ scheme. It point blank states “Do Not Participate in This MMM”

The MMM founder has had a less than clean track record with another MMM scheme in Russia that collapsed, arrests for tax evasion and a string of investors that lost everything that they had put into the MMM company. He was later, elected to parliament on a promise to use government funds to pay back investors. In 2003 he was arrested and jailed for four years.

Perhaps if you are thinking of putting your hard-earned savings into MMM or a similar sounding scheme you might reconsider.