EconomicsIs Bitcoin's rise driven by Russian pyramid schemer Sergey Mavrodi moving into China?

Bitcoin’s price has jumped to $500 earlier this week before crashing 20% to around $400 after spending months in the $200s. This price surge is coming out of China with most of the trade volume on Chinese exchanges, after a wave of positive testimonials posted on Chinese video sites for “social financial network” MMM run by notorious Russian conman Sergey Mavrodi.

MMM was founded by Mavrodi in the new post-Soviet Russia. In the early 1990s, Russians were bombarded with adverts showing working-class families becoming rich by investing in MMM. Millions of Russians gave their money to Mavrodi and using his success, he was elected to parliament to get special immunity. In 1994, the scheme collapsed, bankrupting thousands, and Mavrodi served 4½ years in prison for fraud, but only after they revoked his parliamentary immunity.

↑ The MMM commercials, which have become sad cult classics, often involved the punchline of "They didn't con me!" as spoken by a particularly relatable character such as a vulnerable auntie or a skeptical grandmother.

Amazingly, after getting out of prison, he launched new pyramid schemes. His latest version, MMM Global, is designed to exploit holes in weak financial regimes. On his blog he called them: "This is a pyramid, it is a naked scheme, nothing more ... People interact with each other and give each other money. For no reason!"  Instead of acting as a company, MMM now presents itself as a “mutual assistance network” that only exists online, where people buy and share Bitcoin with a pseudo-Marxist ideology that Mavrodi peddles.

Not everyone is excited for MMM. The largest Bitcoin exchange in the world, OKCoin, currently under cyber attack, has declared “neutrality”, distanced itself from MMM, and warned its investors to avoid “multi-level marketing ponzi schemes”.

Bitcoin’s legally vague status helps. The People’s Bank of China forbids financial companies from working with Bitcoins, but not individual people. Without a centralized institution, no way to reverse Bitcoin transactions, and no Bitcoin insurance available, investors are helpless. And if the scheme collapses, Mavrodi will just launch a new one. MMM claims to operate in 60 countries, and as Mavrodi’s decades-long career proves, there’s a sucker born every minute.