Bitcoin vs Dimon – Is Bitcoin a Fraud?

Quick note on JPMorgan’s Jamie Dimon bashing Bitcoin last week. If you missed it, here it is:


Bitcoin a fraud?

Yes, in the words of Jamie Dimon, Bitcoin is a fraud.

Presumably because “it’s not real”.

Now, hold on. What’s that supposed to mean? Not real, contrarily to fiat money?

Right. As if the fourth law of thermodynamics states that there must exist a THE US DOLLAR and that people have to believe that a dollar is worth something.


Money only has a value because people agree it does – period. Whether that money is US dollars, gold, cowry shells or bitcoins, it makes no difference.

Or, in the words of bestselling historian Yuval Harari:

Money isn’t a material reality – it is a psychological construct. […] Trust is the raw material from which all types of money are minted.

Yuval Hariri, Sapiens, p.180

In a nutshell, cryptocurrencies fill a particular vacuum: certain people (including many libertarians, independent thinkers, tech enthusiasts, speculators, not to mention terrorists and criminals) have more trust in the blockchain than they do in government. The more people who feel like this, and the more they lose trust in government, the greater the success of cryptocurrencies will be.

Bitcoin is Digital, but the Dollar is Real?

The US dollar is more real than Bitcoin? This argument always amazes me. The market value of the US dollar is much greater than the number of dollar bills printed by the Fed. Only a small fraction of the money supply is in circulation. As we learned in Economics 101, banks multiply the money supply by providing credit to the private sector. We call this the monetary multiplier.

As a consequence, US dollar is mostly stored as bits and bytes on mainframe systems at banks. And central and commercial banks control the money supply in a symbiotic partnership.

So let me ask again: The dollar is real because it comes in coins, and Bitcoin is fake because it’s digital? What a strange argument.

Can Governments Control Cryptocurrencies?

In the same interview, Dimon says that Bitcoin is doomed because governments will shut it down. They will shut it down because they cannot control it.

It’s totally the other way around – cryptocurrencies are so successful precisely because governments can’t control them. They are trying; that much is true! And as cryptocurrencies become more successful, you can bet your bottom dollar, they’ll try even harder.

But then again, governments are also busy trying to control drugs, immigration, and the oil supply. Incidentally, they’re even trying to control investment banks. Are they successful? No, not really.

In fact, governments have a pretty difficult time controlling their own currency. Just think about Black Wednesday, September 1992, the day George Soros broke the Bank of England. Details here for for those too young to remember.

So, if governments can only barely control their own currency, how on earth can we expect them to control cryptocurrencies? We can’t.

Ecuador = Bitcoin

Funnily enough, Dimon mentions Ecuador as a country where people prefer using Bitcoin rather than the local currency:

[…] If you’re in Ecuador […], you’re better off using Bitcoin than using their currency.

Jamie Dimon, CEO JPMorgan

Strange example. Ecuador replaced its local currency, the sucre, in the year 2000.

And what did they replace it with?

The US dollar.


To avoid hyperinflation and falling exchange rates.

Again: a currency is worth exactly what people believe it’s worth. If the government issuing a currency is not credible, the currency devalues and inflation picks up. In the case of Ecuador, the government decided that for the benefit of the country, giving up control of the money supply for the sake of more stability was worth it. They piggy-backed on the Fed’s credibility. And the price they had to pay was loss of control.

Assange in front of the Ecuador flag

Luckily, he doesn’t have to convert his dollars to sucres when he wants to grab a coffee at the embassy’s cafeteria.

Bitcoin only for Criminals?

With his strange Ecuador example, Dimon was probably trying to insinuate that Bitcoin is the criminal’s currency of choice.

Is it really?

BlackRock’s Larry Fink put it differently two weeks ago in an interview with the South China Morning Post: illicit transactions have always taken place. It’s just now with Bitcoin, they’re more transparent.

What we’re seeing now, is, through these cryptocurrencies, the amount of illicit behaviour that is really happening day to day. This is why I love what’s happening. It becomes much more transparent. […] We should not think that this [illicit behaviour] is just happening. No, it happened all the time. It’s now [thanks to cryptocurrencies] becoming a little more transparent.

Larry Fink, CEO BlackRock

breaking bad storage room

They believe in the dollar, but not in banks.


Bitcoin Bubble?

Don’t get me wrong. I don’t believe blindly in Bitcoin. For example, as an environmentally friendly guy, I don’t like the idea that the blockchain is essentially a machine that converts electricity into trust (and trust into money).

Furthermore, governments do need to finance themselves somehow. I get it.

But will this stop the success of cryptocurrencies? Dream on. Governments will have to find other sources of finance – by controlling and taxing electricity, for example.

My two cents (for what it’s currently worth): By simply observing the market, it’s clear there’s a huge demand for cryptocurrencies. Like in the late 1990’s when there was a huge demand for unicorn IPO stocks. Like in the 17th century, when there was a huge demand for tulip bulbs.

Does it mean that Bitcoin is in a bubble? That depends on the definition of a bubble. Surely, Didier Sornette would say yes.

Personally, I simply don’t know. Bitcoin may see a sharp correction at some point. It might be at $5000, at $50,000 or at $500,000. And it might happen this year, next year, or never.

Are Bitcoin Traders Stupid?

Another point Jamie Dimon made was that people trading cryptocurrencies are stupid. Apparently, his daughter made some money trading bitcoins, and he holds her up to ridicule:

My daughter bought bitcoins, it went up and now she thinks she’s a genius.

Jamie Dimon

To a simple soul like me, that sounds very much like what the average trader does at the end of a lucky day. And JPMorgan makes a lot of money with traders. Where’s the difference between trading EUR/USD and trading BTC/USD? Me no understand.


Chimp trading banana on computer

Long! Long! Long banana!

I believe cryptocurrencies will be trader’s turf.

For one, market capitalization and trading volumes of Bitcoin compared to other currencies are still marginal, which adds extra volatility. Traders usually like volatility.

Additionally, there are many market participants new to trading who can easily be skimmed. I suspect there are lots of statistical arbitrage opportunities among different cryptocurrencies.

As a result, Bitcoin will stay speculative for years to come. And smart traders will make tons of money exploiting an immature, unregulated market. Technology enthusiasts will lose some money. But they won’t care, because they bought into the idea more than the financial aspect. And, thanks to cognitive bias, they’ll soon forget their losses.

In short: For the time being, Bitcoin is fit for fun, but not for storing value.

Why, Jamie, why?

To sum up: Is Bitcoin a fraud? Think again.

Are ICOs (Initial Coin Offerings) a fraud? Of course not. ICOs are just ridiculously successful auctions of sometimes mediocre white papers. Pure marketing genius.

But the more interesting question is: why did Jamie Dimon make these illogical and factually inaccurate statements? Because he doesn’t get it? That’s unlikely.

Maybe it was just on a whim, a bad vacation experience on the Galapagos, or a row with his daughter.

Or, could it be that he’s short Bitcoin? There’s no way right now for the SEC to enforce reporting Bitcoin transactions. So maybe he just used his market power to make a little extra money. Or to make a point with his daughter.

Or maybe he just wanted to buy cheap Bitcoin, as some sources claim.

JP Morgan buys bitcoing

JPMorgan buys large amounts of BTC on Nordea

Or maybe his concerns about Bitcoin run deeper? Because his stake in the Fed is bigger than we imagine? Because “his” monopoly is threatened by Bitcoin?

After all, without its own private money printing machine (aka the Fed), JPMorgan would have gone bankrupt in the aftermath of the Great Financial Crisis. And without the SEC’s regulatory power, entry barriers for FinTech startups would be much lower.

As the saying goes: “There are two sides to every coin”.

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