As many have predicted was an inevitable future, the man known only as Pirateat40 on bitcointalk.org announced the closure of his investment service, the Bitcoin Savings & Trust, earlier today, citing complications in performing larger transactions as the primary reason. The interest rate given to investors was a staggering 7% per week for large investments, a number that could not have been sustainable in the long run and could only be matched in non-Bitcoin economies with ponzi schemes and similar cons.
Although it remains unconfirmed as of yet whether Pirateat40’s proposed investment service was or was not in fact a ponzi, the truth will undoubtedly be more clear next week: he has promised to pay back all of his users within a week, and begin those paybacks starting on Monday. We will find out very quickly whether he has the ability to repay all customers, or if those words were the last we’ll ever hear from him.
After briefly touching $15/BTC prior to the news of the shutdown, the market had a stark reaction when the announcement was made, as it is fairly well known that deposits with pirate exceeded at least several hundred thousand BTC, if not more, and could be used to greatly affect the Bitcoin price. Within an hour, the price per bitcoin had dropped to almost $10 before stabilizing around $12.50. Two trains of thought dominate recent market discussions: either Pirateat40 will be able to repay all of his investors, flooding the market with BTC that had been previously locked up and driving the price down as some of the investors cash out, or Pirateat40 was running a ponzi and will simply run with the currently-held funds, leaving no potential for cashout in the immediate future, and potentially more buying, as investors seek to replace the lost BTC. Even the latter scenario does legitimize a price drop; if such a large con was to be revealed, it could shake confidence in Bitcoin considerably, and that uncertainty could lead to further price drops.
Many investors in the program shared the belief that it was a ponzi scheme, but openly admit to investing in it (or pass-throughs made for smaller investors) anyhow. If reinvested, the return on investment at 7% interest rate would mean a doubling of one’s account balance about every 10 weeks. And, given that the service has been running since early November 2011, a user could have conceivably seen an increase in their account balance of 700%. These extravagant returns attract investors who believe they will be able to pull out of a scheme before it collapses, even though they might know it is a scheme to begin with.
Keep a watchful eye on bitcointalk.org come Monday – it should be very telling as to whether investors will be seeing a bitdime of their money back or not.
Do you expect Pirateat40 to pay back his customers? Tell us in the comments below, or send an email to firstname.lastname@example.org.