Strategy

JP Morgan CEO Slams Bitcoin, But This Shouldn't Deter HNWIs

Josh O'Neill, Assistant Editor, 14 September 2017

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Jamie Dimon has voiced his opinion on the first and most well-known crypto-currency, but high net worth investors should not be put off by his words, says another chief executive.

JP Morgan chief executive Jamie Dimon has slammed bitcoin, touting the first crypto-currency as a “fraud” that will blow up.

“The currency isn't going to work,” Dimon said Tuesday at a bank investor conference in New York. “You can't have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”

The Wall Street giant's head predicted big losses for bitcoin buyers.

“Don't ask me to short it. It could be at $20,000 before this happens, but it will eventually blow up,” he said. 

Dimon's comments come as the price of bitcoin, which allows users to circumvent banks to make transactions with minimal fees, has surged more than 300 per cent over a year to as much as $4,700 at peak times.

Dimon said that if any JP Morgan traders were trading bitcoin, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous”. Bitcoin's price tumbled as much as 4 per cent following Dimon's comments. 

Bitcoin was created in 2009 by an unidentified person or group operating under the pseudonym Satoshi Nakamoto. In the wake of the 2008 financial tsunami, so-called “cypherpunks” sought to create a decentralised payment system independent of distrusted central banks and free of regulatory burden.

While banks have generally steered clear of bitcoin, the crypto-currency has gained the support of some money managers, technology enthusiasts and speculators wooed by its price swings.

Potential

And, in the face of Dimon's slurs on bitcoin, some have argued that bitcoin and other crypto-currencies, such as ethereum and litecoin, present opportunities for high net worth investors. 

“Whilst [crypto-currencies] are in their infancy, they definitely represent a new asset class,” said Antonio De Negri, CEO and founder of Cirdan Capital Management, the investment solutions provider. “[Ultra- and high net worth investors] should definitely have some exposure to crypto-currencies. Ignoring them is like ignoring exchange traded funds when they appeared in the late nineties. Conservative money managers said ETFs were a bubble, that they were just a type of financial engineering. ETFs now completely dominate the market.”

Crypto-currencies have a market cap exceeding $150 billion, with bitcoin accounting for around $66 billion of the total. 

The supply of bitcoin is meant to be limited to 21 million, which is why some liken it to gold because there is a finite supply of both. Some bullish bitcoin analysts have cited prices as high as $100,000 for a single bitcoin within 10 years, and this price is “quite conceivable” once no more bitcoins can be produced, according to De Negri. 

He added that a “key question” of bitcoin's future will be how regulators view it in five years' time. “The outlook is good. For example, Japanese taxes can now be paid in bitcoin,” he said. 

Still, UHNWIs and HNWIs are unlikely to buy crypto-currencies on exchanges using fiat money due to the risk of theft through hacks, “but they may be happy to buy a note or certificate linked to crypto-currencies,” De Negri said. 

“This would give them comfort regarding the product: people like the idea of buying in a format they understand,” he said. 

De Negri said that the largest bitcoin tracker has approximately $500 million in assets under management, combining HNWI and retail money. 

Blockchain

Perhaps ironically, in spite of Dimon's negative outlook on bitcoin, JP Morgan and many of its competitors have invested millions of dollars in blockchain, the technology underpinning bitcoin and every other crypto-currency. 

A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. 

The technology is causing a stir within the financial services sector as its supporters believe it could reduce hidden expenses in the financial system by ousting inefficiencies across areas such as payments, syndicated loans and equity clearing. 

Dimon said blockchain-based solutions will roll out over the coming years as financial services institutions adapt the technology to their business lines.

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