I mostly agree, but I do believe the author is trying to paint a picture of a Ponzi-like dynamic of early investors cashing out as gullible later investors buy in (many hoping to cash out to still later investors). The fact that there are real cashflows is incidental, as they apparently aren't enough to cover the costs of doing business as usual.
I don't think 'pump and dump' is the right term for this phenomena. It's something a bit different. With a p&d, founders/early investors know it is a sham and are trying to hype up the price and get out before the hammer comes down.
This is more like the dotcom days or trying to be like Amazon - the founders really think they can grow the business into something profitable, but for whatever reason wildly miscalculate the trajectory. The founders are going to ride it right into the ground (or until they get the boot)
> A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds.
Sounds pretty Ponzi-like to me, even if that's not the intended mechanism of the company. I would agree that a literal, correct Ponzi scheme would involve no plausible way to make operational profits.
I think pump-and-dump is actually further from the dynamic the author is describing. Although pump-and-dumps don't absolutely have to be short-term, they tend to be.
> - Ponzi schemes typically come with the expectation of profit over a relatively-extended period of time and typically last for months, years or even decades before their inevitable collapse. By comparison, pump and dump scams are designed to make profits extremely quickly and are executed over a period of weeks, days or even hours.
> - Ponzi schemes are occasionally the result of investment vehicles that are originally intended to be legitimate but ultimately fail to perform as expected. By comparison, pump and dump schemes are invariably intended to be scams from their conception, although a fairly common tactic employed by pump and dump schemers is to take over a once-legitimate business (one that is either failing or defunct), or even just its name, in order to pump and dump its stock.
The key difference is the word profit. Peloton et al do not claim to make a profit, there is no dividend.
The reason the difference is important is because if you we understand what a Ponzi scheme really is, we won't be able to identify them and prosecute them. Claiming that "everything is a ponzi scheme" is actively harmful.
Peloton doesn't claim to make a profit, but expectations of "profits" are the expectations of "investors", where early "investors" extract gains on their investment from new money coming in from later "investors".
Just because a scheme is legal under current laws does not mean it is not a Ponzi or Ponzi-adjacent.
> early investors cashing out as gullible later investors buy in
This isn't the Ponzi dynamic. Full stop. In a Ponzi scheme, early investors suffer just as much as later investors if they never cash out.
"Buy low sell high" (and the reverse) is not the Ponzi dynamic. Speculative asset bubbles do not require continual new investment. They are essentially zero sum games, and if they are traded thinly enough, can be propped up by a tiny band of holders (or even a single trader doing wash trades!).
Ponzi schemes are frauds, but not all frauds are Ponzi schemes.
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