Dimon v Bitcoin as “Fraud”


Bitcoin took a big hit yesterday on the back of the now famous comments from Jamie Dimon, head of the world’s biggest bank, JP Morgan Chase.  Dimon said that if any JPMorgan traders were trading the crypto-currency, "I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous."  He also stated that bitcoin “is a fraud”.  Overnight the falls continued, with bitcoin down 14% and Ether down 17%.

So the question is, did Dimon’s words really cause this price drop or was this just the ‘correction we had to have’?  Technical analysts will say the drop was overdue, is about the right size as we speak, and that the ‘reason’ or narrative is subjectively taken to suit.  The Dimon comments tend to support this position.  Let’s take another look at it.  Bitcoin, Ether, etc operate in a P2P or ‘Peer to Peer’ decentralised network.  As the name suggests, that means there is no role or need for an intermediary… ala a bank.  So to be clear, the market supposedly reacted this way based on the head of the world’s biggest BANK, saying bitcoin was no good…  Oh and by the way, that same bank just reported a 20% drop in trading revenue over the last year.  Seriously?  It would be like Shell saying batteries are a fraud…

Furthermore, Dimon’s spray included references to bitcoin creating money out of “thin air”.  Again… please!  Dimon seems to have forgotten Fractional Reserve Banking where institutions like his take your $1000 deposit and lend out $10,000 on the back of it.  Pooof!  That is “thin air”.  Furthermore it ignores the very real cost in creating bitcoin.  It certainly raised the ire of John McAfee of MGT Capital Investments who mine bitcoin.  Here’s what he had to say:

"I'm a bitcoin miner. We create bitcoins. It costs over $1,000 per coin to create a bitcoin. What does it cost to create a U.S. dollar? Which one is the fraud? Because it costs whatever the paper costs, but it costs me and other miners over $1,000 per coin. It's called proof of work."

You see markets are markets.  They tend to follow historic trends of human behaviour (without most humans seeing it coming) and the technical analysts think this pull back is in line with their expectations.  A highly regarded analyst customer in store yesterday said he was waiting for US$4000 bitcoin as his trigger to load up for the next leg up and that Ether was already there.  BTC is now at US$3800…  That said, bitcoin is still comfortably up 194% just this year alone (in AUD).

Speaking of markets being markets, whilst his sensationalist rant on bitcoin got all the headlines, Dimon also had this to say that same day:

“Oh, listen, markets are markets. There's low volatility until they're highly volatile. The stock market is high until it goes low. Markets therefore have always been wrong. And I think people are making mistakes. I can give you reasons why it might be low. We've had this fairly consistent, coherent, consistent growth. But forget the geopolitical noise and stuff like that. We're chugging along, 2%. Europe is doing 2%. Russia - I mean, Japan is doing 1.5%, China's doing their 6%. You know, earnings are doing okay. We've had a fairly benign economic environment.

That's a reason. I can give you another reason is that the Central Banks of the world that bought $12 trillion of securities. 12 trillion. Since they started doing QE. And that's only just the U.S. That's an awful lot of security purchases that might - in all things be equal, and remember things are never all equal - can reduce volatility. And there may be other sides that are known. And once other sides happen, watch out. Then volatility goes way up. They'll say they're a genius, they figured out when it's going to happened. I don't guess on which kind of volatility. Like I said, we do a business. And we have to manage the volatility.”

In other words everyone is blissfully riding these record high financial markets without a care in the world.  It’s different this time….  Dimon suggests that maybe, just maybe, this is all propped up by central bank stimulus and when that is removed, back comes volatility.