Research Affiliates CEO calls crypto a ‘Ponzi scheme,’ questions ‘substance’ of blockchain

The chief executive of California-based asset manager Research Affiliates has called cryptocurrencies a “Ponzi scheme”, claiming bitcoin and the blockchain technology underpinning the world’s largest digital asset help fuel illegal activity.

“They are a Ponzi scheme that facilitates money laundering,” Chris Brightman told Financial News when asked about his views on cryptocurrencies.

Brightman, who became CEO of the $168bn asset manager in 2021, said bitcoin is not a medium of exchange, nor a reliable store of value or an inflation hedge — claims made by some promoters of the digital currency.

Brightman said bitcoin was purely speculative, making money for those who hold it by selling on to others at a higher price.

He said he had concerns about blockchain, which some asset managers have claimed has the potential to disrupt industries. The technology has been lauded for its ability to create decentralised records of ownership that cannot be altered or changed.

Brightman said the more he looks into the subject, the less he finds “of substance as to what the blockchain really is”.

“The issue is not so much whether distributed ledger is a reasonable coding technique that could be applied, the question is what legal ownership does this convey? The idea that we somehow can use distributed ledger technology to eliminate all the constraints of centuries of legal convention is a libertarian pipe dream.”

READ Why BlackRock is bullish on blockchain, but not bitcoin

Brightman’s comments on blockchain come after BlackRock, the world’s largest asset manager, recently indicated it was bullish on the technology on account of its potential to be disruptive.

Salim Ramji, global head of iShares and index investments at BlackRock, told Financial News on 22 June that blockchain is “incredibly innovative and incredibly disruptive”.

“It takes out frictions, it enables the easier transfer of value in ways that make the underlying plumbing of markets much more efficient for clients,” Ramji added.

In April, BlackRock rolled out its Blockchain and Tech ETF, which gives investors broad access to companies that are involved in blockchain technology. The ETF’s portfolio of 33 companies invests in Coinbase, Riot Blockchain and Galaxy Digital.

Bitcoin and other cryptocurrencies continue to endure price swings as a so-called crypto winter sweeps across the industry. Bitcoin is now trading below a key $20,000 level and is down more than 70% from a peak it reached in November 2021.

READ Amundi and PGIM warn of crypto winter: ‘This crash feels different’

Celsius, which has grown to become one of the world’s largest crypto lenders, with more than $12bn in deposits, has frozen all withdrawals. It cited “extreme market conditions” in a 12 June announcement and has since hired restructuring consultants from advisory firm Alvarez & Marsal to help with a possible bankruptcy filing.

Elsewhere, crypto-focused hedge fund Three Arrows Capital, which was co-founded in 2012 by Zhu Su and Kyle Davies, has fallen into liquidation. The collapse followed disclosure from crypto broker Voyager Digital that the hedge fund had defaulted on a loan worth $675m, which was handed out in the form of 15,250 bitcoin and $350m-worth of USD Coin, a stablecoin pegged to the US dollar.

Meanwhile, Coinbase, the world’s largest crypto exchange, said it plans to axe about 1,100 jobs — representing around a fifth of its workforce.

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To contact the author of this story with feedback or news, email David Ricketts

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