I spent nearly six years on the derivatives desk at JP Morgan here in Hong Kong. I held the CEO Jamie Dimon in extremely high regard, as I think did most other employees, and many others in the finance industry. He’s probably one of the most highly respected bank CEOs around.
But at a conference, yesterday, Jamie had some pretty strong opinions about bitcoin, saying:
“It’s a fraud”
“It's just not a real thing, eventually it will be closed”
“It’s worse than tulip bulbs. It won't end well”
“If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars”
None of this makes sense to me… I hardly even know where to start.
If you’re a murderer, then “you are better off doing it in bitcoin”?
Likewise, if you’re a drug dealer – then you should be using bitcoin?
His comments were absurd.
If bitcoin is the currency of corruption and crime… I have to wonder, when JP Morgan’s fellow global bank, HSBC, was fined US$1.9 billion for laundering money for Mexico’s Sinaloa Cartel and Colombia’s Norte del Valle cartel… how many bitcoin were involved? That would be… zero.
But less logical than all of that is Jamie’s suggestion that “eventually [bitcoin] will be closed”.
As it happens… Bitcoin can’t be “closed”. It’s not an overleveraged credit derivative fund. It’s a distributed blockchain running on a global network of computers.
As for “fraud” and “tulip bulbs”… it’s a statement from someone who would appear to know fraud well. The US$66 billion-dollar current value of bitcoin in circulation is only 5 times bigger than the US$13 billion then-record settlement that JP Morgan bank paid for its alleged role in underwriting fraudulent securities prior to the 2008 financial crisis. That should help put the numbers in perspective.
Just to clarify, bitcon is a terrible currency for crime.
As many people know, every bitcoin transaction is recorded on the blockchain for anyone to see. A suitcase of cash, albeit impractical, is less traceable than bitcoin. Gold is an even better for criminal value transfer, as it resides completely outside of government issuance, and doesn’t even touch the digital realm.
When it comes to bitcoin, there are companies that specifically help law enforcement to follow digital money trails and track down suspected criminals that use bitcoin.
Bitcoin is just a relatively uncomplicated, cryptographically secure medium of exchanging value. It’s scarce by design, unlike fiat currencies which can be created in their trillions at the push of a button.
Is bitcoin volatile? Absolutely. Is it in a short-term price bubble facing correction? It could well be.
But Mr. Dimon’s commentary reeks of a lack of basic understanding of not only the mechanics of bitcoin. It also helps explain why there is such a passionate, and growing, base of users.
Bitcoin was born in banker discontent
Any blockchain has a first “block”, known as the genesis block. On July 3, 2009, the person (or persons) known as Satoshi Nakamoto, responsible for the bitcoin whitepaper (the technical roadmap for the bitcoin blockchain protocol), released the genesis bitcoin block.
This block (effectively a 'block' of data) includes the headline from the front page of British newspaper The Times, “Chancellor on brink of second bailout for banks”.
It’s unknown whether this was simply intended as a form of time stamp, or as a nod to the disarray that engulfed the financial system at the time – in particular, the hundreds of billions of dollars paid to bail out banks. (Note: Jamie Dimon told the U.S. Senate Banking, Housing and Urban Affairs Committee back in 2012 that JP Morgan did not need bailout funds but that he was instructed to take them.)
Either way, the American public in general retain a pretty dismal view of U.S. banks (see chart below).
Since a high of 60 percent in the late 1970, popular confidence in the U.S. banking system has fallen to just under 30 percent.
More importantly, a substantial proportion of the global population simply doesn’t have faith in the fiat currency issued by its respective government as a way to store value.
Now, you might be fine sitting in a Wall Street office, content with your U.S. dollars, and running a bank that is profiting from the relentless money printing largesse on the back of perpetually low interest rates and financial asset inflation. (Earlier this year, Mr. Dimon's JP Morgan announced that it had earned US$26.5 billion in profit over the preceding 12 months, a record by any major U.S. bank.)
But the 1.3 billion people in India who were told last November that nearly all the cash they were holding was now invalid and needed to be exchanged for new ones – they have a little less confidence in their currency.
Bitcoin can’t be printed by a central bank. There’s no “fraud” unless it's perpetrated by dishonest users of bitcoin, which is no different from any other form of value transfer. It can’t be “closed”. It’s just an alternative that offers a huge number of advantages over traditional fiat currency.
I wrote the other day that I relish hearing the counterarguments, the reasons not to own bitcoin. But I don’t think Mr. Dimon has presented any valid ones yet.
So until he does, Mr. Dimon’s bitcoin eulogy takes the top spot on this bitcoin obituaries website (well worth a browse to see how many financial luminaries have announced the death of bitcoin over the years).