Wharton Dean: Dimon Mindset Is Wrong, Cryptos Mean "The End Of Money As We've Known It"

Wharton Dean Geoffrey Garrett sees a big split in how blockchain-based digital cryptocurrencies like bitcoin are viewed on Wall Street versus in Silicon Valley. On the East Coast, the idea of a cryptocurrency replacing a fiat currency is still met with skepticism. But in the Valley, they seem “all in.” In this opinion piece he offers his views on this corner of fintech.

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I spent the first week of the New Year with a great group of Wharton undergraduates visiting many of our tremendous alumni in the San Francisco Bay Area. To say it felt very different from the East Coast is an understatement. And I am not talking about missing the “bomb cyclone,” which we did.

I am talking about blockchain/bitcoin/cryptocurrencies, which are much more than a speculative Chinese-cum-millennial obsession.

Whereas most people on Wall Street remain skeptical, playing a wait-and-see game, Silicon Valley is all in. Literally every meeting I participated in, from the biggest tech companies to the smallest startups, was rich with enthusiastic and creative crypto conversations.

I used to think “fintech” meant the end of physical cash - replaced by mobile payments platforms owned by big multinational firms and currently led by China, in established currencies regulated by national governments and international agreements.

I now wonder whether the ultimate fusion of technology and finance will mean “the end of money,” at least as we have known it for the last millennium. It’s no longer sci-fi to imagine the replacement of dollars and other “fiat money” with open sourced, radically decentralized, deeply encrypted and self-regulating transactions in digital units of exchange that are “mined” rather issued by central banks.

A true fintech revolution.

I have to admit I went west very much in the Jamie Dimon mindset. The JPMorgan CEO and voice of Wall Street since the financial crisis famously dismissed bitcoin’s virtual rise in 2017: “I could care less about bitcoin.” Strip out his typically gruff rhetorical flourishes, and Dimon was making 2 fundamental points.

Dimon’s first point was that “blockchain” — a globally distributed ledger of financial transactions made secure by advanced cryptography and competition among “miners” (computers competing to execute and record transactions, and being compensated for doing so) — has massive upside. But to become central to mainstream commerce, blockchain will have to lose its unregulated open source roots, be managed by a big multinational conglomerate (think some combination of Visa/Mastercard transactions and SWIFT international transfers), and fall under the clear jurisdictions of national governments and international agreements.

His second point was that the transactions that blockchain records will ultimately be in “cryptodollars”, or cryptoeuros, cryptoyuan, etc. — not bitcoin, ethereum, or any other “non-fiat,” purely “digital” currency that is not issued by central banks. This is because there is literally no underlying value to a bitcoin (“worse than tulips,” to use the oft-cited example of the Dutch “tulip bubble” in the 17th century). In contrast, there is underlying value to a dollar — guaranteed by the US Federal Reserve tied to the strength of the American economy.

The more I talked with people in the Valley, the less convinced I became of these two points.

This is very disconcerting to people like me, steeped in more than 200 years of macroeconomic thought. All the giants (Adam Smith, David Ricardo, John Maynard Keynes, Milton Friedman, Paul Samuelson, and others) not only assumed the centrality of currencies as we have known them. They also valorized money as literally the foundation of a well-functioning economy — both a unit of exchange and a store of value.

In Silicon Valley, there is a healthy disregard for all things Washington, government, and regulation - and of course for the status quo. It’s no surprise there seem to be many more bitcoin believers on the West Coast.

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Source

They ask powerful rhetorical questions.

Don’t governments and central banks always face the temptation of printing more money? Are you really so happy with the fees credit cards and banks charge? Wouldn’t it reduce our worries about hacking and cyber security if financial transactions were better encrypted and recorded on millions of computers rather than a handful? Isn’t the genius of bitcoin that there is a finite limit to how many can be produced (by the “halving” algorithm at the center of bitcoin mining)?

I tend to get lost as soon as the blockchain/bitcoin evangelists get into the real data science behind these technologies, but I do think there is real merit to their rhetorical questions. And I increasingly sense I am not alone.

Consider these simple facts.

We now can trade bitcoin futures on a crusty old financial exchange. There is lots of VC money pouring into crypto. Asset managers are starting to think about cryptocurrency indexes as a great diversification strategy, because bitcoin risk is likely uncorrelated with any “regular” economic risk. All are powerful indicators that the leading edge of “conventional” finance is taking very seriously the prospects for very radical financial innovation.

 

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Finance meets technology, harnessing the combined power of Wall Street and Silicon Valley. Not only the end of cash, but also the end of money. That is the prospect and potential of fintech. What will happen and when it will happen is impossible to predict — as is invariably the case with the most radical innovations. But there is little doubt that an enormous amount of capital, energy and creativity will pour into cryptocurrencies in the coming months and years — even if bitcoin proves the biggest bubble since tulips.

*  *  *

Geoffrey Garrett is Dean, Reliance Professor of Management and Private Enterprise, and Professor of Management at the Wharton School of the University of Pennsylvania. Follow Geoff on Twitter

Comments

JibjeResearch RAT005 Sat, 01/20/2018 - 18:51 Permalink

Crypto and Gold follow the same principle.

If Gold was not diluted by the quantity of paper gold, its price would be north of the current price.  People will not buy gold if they receive the paper gold.  They want physical gold.

You can not dilute the total of BTC.  It's about 20 Millions BTC coins.  It will stay that way; thus, the price will go up.

The future contract has no effect on BTC.

In reply to by RAT005

RAT005 JibjeResearch Sat, 01/20/2018 - 18:56 Permalink

Crypto futures are just online gambling.  I think that message is pretty clear.  But people going long could be siphoning capital away from actual Crypto purchases.

The issue is that as BTC tries to survive, the cost of using BTC goes up which lowers it's value.  Lower value reduces demand and value falls.  BTC is consuming itself: operating cost going up while value is going down.  No way to stop the cycle.  Crypto 2.0 might solve the problem, I don't pay attention, but BTC can't escape.

In reply to by JibjeResearch

manofthenorth JibjeResearch Sat, 01/20/2018 - 20:04 Permalink

"It's a store of wealth JUST like gold"

Gold miner pisses himself rolling on the floor laughing.

Bitcoin may well make a bunch of people a pile of "money" BUT

until you show me where elemental bitcoin fits on the periodic table,

it will NEVER be JUST like gold.

You know what is JUST like gold ????

NOTHING, it is an element unlike ANYTHING else.

In reply to by JibjeResearch

MANvsMACHINE stizazz Sat, 01/20/2018 - 23:31 Permalink

Bitcoin is just like gold...paper gold.

Once people can get into any crypto without having to pass through BTC, the true value of BTC will be exposed.

When ETHOS is operational, the need to buy BTC will be reduced considerably.  Some may continue to prop up the price of BTC, but I believe it will look more like tulips then.

For transactions, there are many other crypto coins with significantly better attributes than BTC

In reply to by stizazz

JibjeResearch MANvsMACHINE Sun, 01/21/2018 - 01:40 Permalink

"Once people can get into any crypto without having to pass through BTC, the true value of BTC will be exposed. " 

That's a true statement; however, I'm waiting to see how it turns out.  I think even if that is so, BTC is still a store of value used to prop up other cryptos.

 

The only value on this planet are the people.  Without people, where's no value.  A successful fund manage understands this correctly.  

In reply to by MANvsMACHINE

BallAndChained JibjeResearch Sun, 01/21/2018 - 11:10 Permalink

> Bitcoin is backed by people. 

Backed by the same fickle people who panic dumps it.

When Bitcon was collapsing, did those backed by people restore all your losses?

MySpace was backed by people. Until it wasn't.

It is like saying tulips are backed by people.

Bernie Madoff fund was backed by people. The only reason it had value was people put money in the Ponzi. Until they ran out of suckers to put anymore money in.

In reply to by JibjeResearch

toknormal manofthenorth Sat, 01/20/2018 - 21:23 Permalink

Indeed. "Nothing" is just like gold. Except that gold isn't money anymore because it's physical and therefore cannot travel through wires. Gold's value was attributed by man. It was capitalised over time according to the needs of physical markets.

Gold was the "Bitcoin" of the day.

But while the lights are on, Bitcoin is the "Bitcoin" of the day. It can travel through wires, be held ("if you don't hold it you don't own it") and be traded.

The only way gold will ever be valuable again is if the entire world is in a state of utter misery and starvation because while gold isn't "manipulatable", the fact that it can't be delivered over a wire means that its exchange rate is.

In reply to by manofthenorth

Kretenoid toknormal Sat, 01/20/2018 - 23:41 Permalink

Seriously , can you be more cult-like than this ?

 

Gold will lose value with the death of the last human.
Your god needs those wires to exist, to be created and to be used as the biggest scam on earth.

Without Gold , Silver , Copper , Aluminum and a bunch of other "archaic" stuff , there will be 0 BUTTcons , hence the value of BUTTcon will be 0 .
 

Go prop your FED QE (Bitfinex/Tether)

If all of you cultists had 1 brain cell , you all would be far and away from cr@ptos.

Since the DIP , For 7 days days straight , Bitfinex/Tether have been QE-ing fresh USDT into the shitstem.

on 14th 50,000,000  , 15th-20th - 100,000,000 per day .

By an unimaginable SHITOSH-cidence - shortly after the press has farted the QE , all of the funnymunny has been used to buy OVERPRICED Buttcoin ($500-$1000-$1500-$2000 above current market value) .

Those who can't see past this scam and see it for what it is , really need to seek some kind of help ( as brain-transplant surgery is still long way ahead of our time).

Once the show is over , the hit will fit the shan harder than your tiny , glass-surfaced brains  can imagine.

In reply to by toknormal

Miggy manofthenorth Sat, 01/20/2018 - 21:46 Permalink

The comparison stems from the difficulty of obtaining, not the physical properties. Bitcoin gets tougher to mine the more Bitcoin that is solved. Just like gold has an intrinsic supply issue because it is so hard to get out of the ground. Unlike Fiat.

 

I don't know what the future holds for Bitcoin just like everybody so I observe what others are doing not necessarily saying. I have never tried to buy anything with it but have a small amount just to stay in the game. I have a difficult time believing it is going away with all of the attention, futures, and trading desks. Gold has no value other than it has been a safe haven for many, many years.

In reply to by manofthenorth

Mementoil Miggy Sun, 01/21/2018 - 12:03 Permalink

Let me make a bold prediction and say that one day Bitcoin will be gone. Completely gone.
The futures contract will no longer be trading, Marketwatch will no longer track its value on their front page. There will be no mention of it on CNBC or Bloomberg, and people will be embarrassed to admit that they ever traded it.

But they will still be discussing the price of gold...

In reply to by Miggy

OverTheHedge JibjeResearch Sun, 01/21/2018 - 08:24 Permalink

My understanding of those forces you mentioned is that they are very, very analogue.  They decrease in easy to define, clearly understood (?!) ways, that tend to involve inverse square laws. Not a digital, on/off all-or-nothing now-you-see-it-now-you-don't arrangement to be had. To misquote someone, gravity is so good, they even keep it on at the weekends.

Regarding the article, I saw this:

 "I tend to get lost as soon as the blockchain/bitcoin evangelists get into the real data science behind these technologies,..."

If the author doesn't understand Bitcoin, how can he have an opinion that should be listened to? Because it reinforces other peoples' opinions?

My ill-educated, misdirected opinion about Bitcoin is that it will now go sideways, as people can't afford to get out (no greater fool available), and new money will rush into the next big leap forward - whichever madcap coin-du-jour is flavour of the minute. Each of these new fads will reach a plateau, and then do the same, as the mad money moves to the next frothy coffee. However, each iteration will leave more enthusiasts' cash stuck, so we might even see a series of lower highs for each new fadcoin.

Much like the author, I have an opinion, and I'm not afraid to use it. Make your own minds up as to which of us is more, or less qualified to spout about things we don't understand fully.

In reply to by JibjeResearch

sessinpo Quinvarius Sun, 01/21/2018 - 04:07 Permalink

You are one of those posters that only have the courage to come out after BTC has had a large correction. Yes, BTC declined severely over the last few months.. On a year to year bases. it is up over 100%. Now go disappear while BTC goes back up the rest of the year to new all time highs. I'm sure we'll see you sporadically after BTC hits another correction during its bull run.

In reply to by Quinvarius

silvermail JibjeResearch Sun, 01/21/2018 - 06:28 Permalink

The financial nature of gold is that gold itself is a value, - as a material for making jewelry.

Bitcoin and all the other so-called crypto-currencies have two components - technological and financial.

- The technological part nature of bitcoin - it is a technological shell. That is, it is a wrapper (mask) in the form of blockchain and crypto technology, in which the financial nature Bitcoin is packed (hidden).
- Financial nature bitcoin - it is a pyramid, - the Ponzi scheme.

Because the growth of the imaginary value of bitcoin, is due solely to the influx of new idiots into this financial pyramid.
The growth of the imaginary value of Bitcoin is not due to anything else.
The growth of the value of the asset solely due to the influx of new idiots into the Ponzi scheme is the main sign of all financial pyramids.

But as soon as you try to explain this to any member of the bitcoin witness sect, they will immediately start dragging the conversation into the plane of bitcoin technology.

They, like any sectarians blindly believe and therefore do not want to talk about the most important thing - about the financial nature of bitcoin.
They are ready to talk for hours about bitcoin technologies only - about blockchain and crypto technology only.
That is, they are ready to talk only about that high-tech wrapper, which wraps (hidden) the usual nature financial pyramid Bitcoin and all others usual financial pyramid, in the shape of all the others so-called crypto-currencies.

(Pseudo crypto + pseudo currency) =  (usual financial pyramid), which is just hidden in the an unusual high tech mask packed.

Nevertheless, the very idea of ​​obtaining wealth without difficulty, at all times successfully enslave the consciousness of the mass of fools. And various ingenious swindlers, at all times, have successfully used this feature of the stupid masses of the people.

In reply to by JibjeResearch

BallAndChained silvermail Sun, 01/21/2018 - 11:26 Permalink

Good post silvermail.

"The financial nature of gold is that gold itself is a value, - as a material for making jewelry.

Bitcoin and all the other so-called crypto-currencies have two components - technological and financial.

- The technological part nature of bitcoin - it is a technological shell. That is, it is a wrapper (mask) in the form of blockchain and crypto technology, in which the financial nature Bitcoin is packed (hidden).
- Financial nature bitcoin - it is a pyramid, - the Ponzi scheme.

Because the growth of the imaginary value of bitcoin, is due solely to the influx of new idiots into this financial pyramid.
The growth of the imaginary value of Bitcoin is not due to anything else.
The growth of the value of the asset solely due to the influx of new idiots into the Ponzi scheme is the main sign of all financial pyramids.

But as soon as you try to explain this to any member of the bitcoin witness sect, they will immediately start dragging the conversation into the plane of bitcoin technology.

They, like any sectarians blindly believe and therefore do not want to talk about the most important thing - about the financial nature of bitcoin.
They are ready to talk for hours about bitcoin technologies only - about blockchain and crypto technology only.
That is, they are ready to talk only about that high-tech wrapper, which wraps (hidden) the usual nature financial pyramid Bitcoin and all others usual financial pyramid, in the shape of all the others so-called crypto-currencies.

(Pseudo crypto + pseudo currency) =  (usual financial pyramid), which is just hidden in the an unusual high tech mask packed.

Nevertheless, the very idea of ​​obtaining wealth without difficulty, at all times successfully enslave the consciousness of the mass of fools. And various ingenious swindlers, at all times, have successfully used this feature of the stupid masses of the people.

"

In reply to by silvermail

BallAndChained silvermail Sun, 01/21/2018 - 11:33 Permalink

> Nevertheless, the very idea of ​​obtaining wealth without difficulty, at all times successfully enslave the consciousness of the mass of fools. And various ingenious swindlers, at all times, have successfully used this feature of the stupid masses of the people.

 

Money for nothing and chicks for free never works.

The people who are fooled may say it is difficult to mine, but it was easy to mine for Satoshi and pals (NSA?) at the top of the Pyramid Scheme. Satoshi and pals got the money for nothing, and the fools at the bottom of the pyramid pay $20,000 for an imaginary coin.

In reply to by silvermail

sessinpo RAT005 Sun, 01/21/2018 - 04:02 Permalink

RAT005

The issue is that as BTC tries to survive, the cost of using BTC goes up which lowers it's value.  Lower value reduces demand and value falls.  BTC is consuming itself: operating cost going up while value is going down.  No way to stop the cycle.  Crypto 2.0 might solve the problem, I don't pay attention, but BTC can't escape.

----

 

Yes, we can see you don't pay attention. Certain advances are in preparations that will increase bitcoin's speed and lower costs. Its been in the works for some time and tests have been run  on certain parts before it is fully implemented. And as the other poster said, BTC is not used as a daily transaction payment system, it is more of a store of wealth. That is why most trading pairs of other crypto are with BTC.

There are a handful of other crypto that are designed to be more for daily transactions for the consumer.

 

In reply to by RAT005

BallAndChained sessinpo Sun, 01/21/2018 - 11:50 Permalink

> Its been in the works for some time and tests have been run  on certain parts before it is fully implemented. And as the other poster said, BTC is not used as a daily transaction payment system, it is more of a store of wealth.

 

The transaction fee can never be cheaper than the huge amount of electricity used. The fee is currently subsidized by giving the miners imaginary coins, but that will end when the limit is reached, and the miners are paid with fee only. At that time the transaction fee will be higher than the huge cost of electricity used.

A simple centralized database will always be vastly cheaper than decentralized multiple copies.

> it is more of a store of wealth

Wrong, it is a store of NOTHINGNESS. A Blockchain of NOTHINGNESS to be exact.

There is an unlimited number of Blockchains of NOTHINGNESS that can pop up out of thin air.

You are fooling yourself if you think these unlimited chains of NOTHINGNESS are wealth.

A Blockchain of a physical commodity is a store. Until then, it is a store of NOTHINGNESS.

In reply to by sessinpo

tion JibjeResearch Sat, 01/20/2018 - 19:42 Permalink

You can dilute the perceived amount of BTC via fractional reserve exchange black holes as well as the trading volume.

If the exchanges can manipulate the trading volume, as some have, they can also manipulate the price.

Instead of withdrawing their BTC from the exchanges into their own wallets many are content holding a paper BTC claim on the exchange. 

The future contract gives greater incentive to manipulate the price of BTC via the exchanges. 

At least in the unregulated Wild West of cryptos there may be some options for fighting back.  

I support BTC but with open eyes.  Buckle up, we could see some US fiat gateways blowing up this year.

In reply to by JibjeResearch

tion JibjeResearch Sat, 01/20/2018 - 20:50 Permalink

Sure, people can't dilute the quantity of BTC just like they can't dilute the quantity of actual gold.

If you think that creating more paper claims to gold than the amount of actual gold is a problem, but that exchanges being able to create more paper claims to BTC than the amount of actual BTC is not a problem, you may have some cog dis there.

In reply to by JibjeResearch

sessinpo tion Sun, 01/21/2018 - 04:18 Permalink

tion

Sure, people can't dilute the quantity of BTC just like they can't dilute the quantity of actual gold.

If you think that creating more paper claims to gold than the amount of actual gold is a problem, but that exchanges being able to create more paper claims to BTC than the amount of actual BTC is not a problem, you may have some cog dis there.

----

Here is where you are in error and why you have cog dis.

Gold spot price, of which gold derivatives get their prices are set by a committee in England. Thus, their paper claims on the futures market can have such an impact.

BTC price is not dictated by such a committee. There are many exchanges all over the world that effect the price of BTC.

-

Now this is where one argues that well then TPTB could then use endless fiat to go on all those exchanges to manipulate the price of BTC. And I would argue that they wouldn't need to, there is margin trading. One can short BTC on some exchanges if approved. And if anything, I would say some might be manipulating the price, just so they can get in at better prices. In other words, they know it is going up.

But what most here just simply don't see and why they get it wrong and are missing the boat is they don't recognize the demand is larger then the supply. Straight and simple economics.

 

In reply to by tion

BallAndChained JibjeResearch Sun, 01/21/2018 - 12:01 Permalink

> People can not "dilute" the quantity of BTC.

Liar. BTC is being diluted every 10 minutes as more imaginary coins are created out of thin air to give to the miners.

The max limit is a fake limit as well. All it takes is the few developers to edit the code and change the max limit. The Chinese miners will demand the ceiling be raised when the limit is reached. The code is continuously being changed. Source code is obviously not immutable.

In reply to by JibjeResearch

Miggy tion Sat, 01/20/2018 - 21:49 Permalink

Good post and points. Day Trading Bitcoin is where the exchanges want you to be and where day traders should not be. Like Forex the exchanges are not regulated so price is up to the broker and stop hunting will run rampant. I personally have a small amount and will be hanging in at least until the end of the year. I am quite certain with all the attention it will at least still be around if not double or triple.

In reply to by tion

tion Miggy Sat, 01/20/2018 - 23:53 Permalink

Even with all monkey business considered, jmo BTC held in a secure private wallet still remains as a great inverse hedge against a (2008 implosion) x (Hegemony Death) esque financial teotwawki situation ^^

Nothing has really changed in my reasoning for having bought it in the first place.

In reply to by Miggy

caconhma JibjeResearch Sat, 01/20/2018 - 20:44 Permalink

Geoffrey Garrett is Dean and Professor of Management at the Wharton School of the University of Pennsylvania.

The major points of Geoffrey Garrett are

  • The future is in a cashless society
  • This "cashless society" money must be regulated/controlled by Central Banks.

 

The Bottom Line:

  • Banking Mafia loves a "cashless society" when they have the TOTAL Control & Records of ALL financial operations as well as total control (allowing or denying) of every single individual activity. The rest is just BS.
  • This "cashless society" will also allow Central Bankers to write off their own debts. 

PS

I don't think China will be happy about it with $3T+ $US holdings.

In reply to by JibjeResearch