Russian Huckster Mines for Bitcoin Gold

The recent spike in the price of Bitcoin may have been aided by the rise of a Russian Ponzi scheme in China. If so, it should be a reminder to those who believe a currency decentralization revolution is in the offing that Bitcoin largely remains a medium for illicit exchanges and that the revolution is nowhere in sight.

QuickTake The Rise of Bitcoin

On Wednesday, Bitcoin reached $441, its record for a year. It was down to $389 on Thursday, but still up 63 percent since the beginning of October. For more than two years, most of the trading in the cryptocurrency has taken place in Chinese exchanges, in renminbi:


So it’s safe to say that the price spike probably has its origins in China. Indeed, trading volume surged to more than 3 billion yuan a day in late October, from less than 700 million yuan ($110 million) a month ago. On Wednesday, it reached 5 billion yuan ($787 million), compared with $300 million worth of dollar trades.

One theory is that Chinese investors are looking for new assets after the stock market bubble burst. That makes little sense: Volatile, relatively thinly traded Bitcoin is no haven. The more likely explanation is the growing popularity of MMM Global, the latest brainchild of Sergei Mavrodi, the Russian mathematician who has been building pyramid schemes since 1994. According to, which ranks sites by traffic, started rising in late September, just before the Bitcoin spike. The geography of the rise: India, South Africa, China, the Philippines, Brazil.

“We can’t deny that MMM to a certain extent pushed the recent spike of bitcoin price,” Astrid Tao, an executive at Huobi, one of China’s biggest Bitcoin exchanges, told Bitcoin magazine. “The new investment model of MMM attracted a lot of investors, however it is unsustainable.”

That’s an understatement. The global version of the MMM site offers returns of 100 percent a month. The Chinese one is more modest — a mere 30 percent. Both versions stress that MMM is “not a HYIP” — the modern term for a Ponzi scheme. Whatever it is, Mavrodi has constructed it to be practically unassailable from a legal point of view.

The original, 1994 iteration of MMM presented itself as an investment company that offered huge monthly returns from investing in privatization-era Russia. Mavrodi was the biggest buyer of ads on Russian TV at the time. MMM even paid all fare on Moscow subway for a day. People flocked to MMM with their life savings, and some even sold their homes to invest. But the buyers of MMM “shares” were paid with the money newcomers supplied, and the scheme went bust after six months. It was impossible to establish how much Mavrodi owed his “investors,” but the figure was estimated in the hundreds of millions of dollars.

After a brief attempt at a political career, mainly in order to get parliamentary immunity, Mavrodi vanished. As he lay low in Moscow, he ran a global Ponzi scheme known as Stock Generation, which was structured as an exchange trading shares of virtual companies. It went bust. The U.S. Securities and Exchange Commission’s attemps to prosecute died in the courts. In 2003, Russian police finally apprehended Mavrodi, and he served three and a half years in jail. While in prison, he wrote books. One of these, a fictional rendering of the MMM story, was even made into a modest Russian movie hit.

By 2011, Mavrodi was back in business. He had perfected the scheme: MMM-2011 did not have a corporate center but operated as a kind of social network where a virtual commodity called the Mavro was traded. Participants were divided into “cells” run by early investors. Mavrodi himself “quoted” the Mavros and collected a percentage for advertising and other expenses required to keep the scheme going. The MMM-2011 site even contained an explicit warning that it was a pyramid scheme. When it collapsed, there were criminal investigations in several post-Soviet countries. But Mavrodi’s site clearly stated that it offered no guarantees and that participants were gambling with their money. 

The latest iteration is his masterpiece. It also is a social “mutual assistance network” in which people trade “Mavros,” but it now involves Bitcoin and social networks, especially Facebook. Participants accumulate Mavros by “helping each other” — transferring Bitcoins — and they increase their Mavros’ payoff rate by advertising the scheme on Facebook, posing testimonials on the MMM site and performing other “tasks.” It’s watertight: Bitcoin isn’t a currency (the People’s Bank of China even issued an official notice to that effect in 2013), the organization itself is decentralized and the participants have an incentive to promote the scheme. According to Alexa, Facebook is a top traffic source for

What makes this latest scheme near-perfect is the use of Bitcoin and the lack of any government affiliation. It’s not Mavrodi’s problem if people are willing to trade money for a noncurrency and then send it to each other in exchange for another noncurrency. No one is likely to be punished for running the scheme. And when it goes bust, Mavrodi can just start a new one: If his career has taught him anything, it’s that there’s never be a shortage of suckers and gamblers. He has a serious grudge against the authorities, and backs up his schemes with a kind of quasi-Marxist ideology that attracts people angry at fat cat bankers and government. 

This isn’t what Bitcoin enthusiasts had in mind when they launched and maintained the system throughout its tribulations. But good technology is only a tool; Bitcoin’s blockchain — its method of registering transactions — can be used by Nasdaq or by MMM. Keeping it in unregulated territory invites the second kind of user. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at

To contact the editor responsible for this story:
Max Berley at – leading Bitcoin News source since 2012