“Bitcoin Will Eventually Blow Up. It’s A Fraud” – JP Morgan Chase CEO

by Ike Obudulu Posted on September 13th, 2017

New York, USA. Sept 12th: According to J.P. Morgan Chase & Co. boss Jamie Dimon, bitcoin is a “fraud”, “worse than tulip bulbs”, bitcoin will eventually blow up, bitcoin won’t end well and he would fire any trader trading bitcoin for being stupid. Speaking at a banking industry conference organized by Barclays BCS,  Jamie Dimon compared the rapid ascent of bitcoin and the upstart digital-currency market  with the 17th century mania over tulip bulbs which is viewed as a classic, textbook bubble, and predicted that things may end just as badly for investors in the decentralized currency, which has been surging over the past year.

“Bitcoin will eventually blow up. It’s a fraud. It’s worse than tulip bulbs and won’t end well,” Dimon said. Dimon also said he would fire any trader trading bitcoin for being “stupid.” At the Delivering Alpha conference late Tuesday afternoon, Dimon reiterated that “bitcoin is not a real thing and it’s solely speculative and that there’s no need for it in the US.”

Bitcoin prices fell about 2% to trade at $4,107 on Tuesday, according to CoinDesk Bitcoin Price Index (BPI). Bitcoin prices peaked at above $5,000 on Friday, but plunged 18% since then following unverified reports about plans by Chinese authorities to shut down bitcoin exchanges in the country. China’s regulators last week declared so-called initial coin offerings illegal, dealing a blow to all digital currencies.

Bitcoin’s biggest rival, Ether tokens, trading on the Ethereum blockchain, were down nearly 3% Tuesday at $289. Still, the year-to-date gains for bitcoin are stunning. Bitcoin is up more than 300% since the start of 2017.

But Ether’s 3,600% gains since January dwarfs traditional stock returns. Comparatively, the Dow Jones Industrial Average DJIA, +0.28% is up nearly 12% so far this year, while the S&P 500 index SPX, +0.34%   is on track for a more than 11% return thus far.


Photo: JP Morgan Chase CEO, Jamie Damon

A long-time critic of bitcoin – JP Morgan Chase Jamie Dimon said that the cryptocurrency “will not survive” back in November 2015, at the Fortune Global Forum in San Francisco, when the price was fluctuating around the $400 level. Here’s what he had to say when asked directly about it by an audience member:

“You’re wasting your time with Bitcoin! Virtual currency, where it’s called a bitcoin vs. a U.S. dollar, that’s going to be stopped,” said Dimon. “No government will ever support a virtual currency that goes around borders and doesn’t have the same controls. It’s not going to happen. Blockchain is like any other technology. If it is cheaper, effective, works, and secure, then we are going to use it. The technology will be used, and it could be used to transport currency, but it will be dollars, not bitcoins.”

Since Dimon’s 2015 threat, Bitcoin is up 1,018%

OTC Trading Not Affected: China To Shut Down Bitcoin Exchanges

Beijing, China. Sept 12th: China will move to shut down bitcoin exchanges according to various media reports, citing unnamed “informed sources”. According to the said reports, the ban will be limited to exchange-based trading and will not affect over-the-counter transactions. China’s largest bitcoin exchanges, OKCoin, BTCChina and Huobi, have reportedly told reporters that they are yet to be contacted regarding any trading ban.

The People’s Bank of China (PBoC), the country’s central bank, has not made any official statements on the reported shut down of bitcoin exchanges.

Bobby Lee, CEO of China’s oldest bitcoin exchange, BTCC, posted a poll on Twitter suggesting that he is not entirely convinced by the news.

The reports notably follow a recent ban on initial coin offerings (ICOs) in China, as well as an increase in attention on anti-money laundering policies domestically. For example, the PBoC today put out a notice emphasizing its continued interest in stemming financial crimes and capital flight, two issues long alleged to be connected to its monitoring of cryptocurrency.

China is home to vast and lucrative cryptocurrency mining operations for both Bitcoin, Ethereum, and other cryptocoins. Three Chinese exchanges — Bitfinex, OkCoin, and BTCC — made up over 45 percent of the global market share over the last 30 days, according to Bitcoinity.org. Bitcoin’s growing popularity in China may have caused the government to begin to perceive it as a threat to local currency,  especially as Chinese investors bought up bitcoin and bet against the yuan last year.

This isn’t the first time China’s flexed its regulatory muscle on Bitcoin. Back in 2013, China banned the cryptocurrency from all banks and financial institutions, but left exchanges alone

China Bans ICOs Citing Growing Risks

Beijing, China. Sept 4th: “Starting Monday, ICO activities should be halted, and ICO platforms should not engage in exchange services between fiat currencies, virtual coins and tokens…ICOs, in essence, are a kind of unauthorized and illegal public fundraising, which is suspected of being related to criminal activities such as financial fraud and pyramid schemes,” said a statement from the People’s Bank of China.

Chinese authorities on Monday ordered a ban on Initial Coin Offerings (ICOs), a nascent form of fundraising in which technology start-ups issue their own digital coins, or “tokens”, to investors to access funds as the rapidly expanding market spawned concerns over financial risks.

Following the news, the value of virtual currencies include Bitcoin immediately plummeted.

Also called an Initial Public Coin Offering (IPCO),  ICOs are  an unregulated means by which  companies issue “tokens,” or cryptocurrencies, to investors in exchange for currencies of more liquid value such as Bitcoin, without the need to follow rules associated with traditional channels such as IPOs. Unlike IPOs, in which investors buy stocks in companies, investors in ICOs receive digital coins developed by the firms, which could appreciate in value if the companies fare well and demand for their currencies grows.

In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.

When a cryptocurrency startup firm wants to raise money through an Initial Coin Offering (ICO), it usually creates a plan on a whitepaper which states what the project is about, what need(s) the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for. During the ICO campaign, enthusiasts and supporters of the firm’s initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the ICO is deemed to be unsuccessful. If the funds requirements are met within the specified timeframe, the money raised is used to either initiate the new scheme or to complete it.

Early investors in the operation are usually motivated to buy the cryptocoins in the hope that the plan becomes successful after it launches which could translate to a higher cryptocoin value than what they purchased it for before the project was initiated. An example of a successful ICO project that was profitable to early investors is the smart contracts platform called Ethereum which has Ethers as its coin tokens. In 2014, the Ethereum project was announced and its ICO raised $18 million in Bitcoins or $0.40 per Ether. The project went live in 2015 and in 2016 had an ether value that went up as high as $14 with a market capitalization of over $1 billion.

ICOs are similar to IPOs and crowdfunding. Like IPOs, a stake of the startup or company is sold to raise money for the entity’s operations during an ICO operation. However, while IPOs deal with investors, ICOs deal with supporters that are keen to invest in a new project much like a crowdfunding event. But ICOs differ from crowdfunding in that the backers of the former are motivated by a prospective return in their investments, while the funds raised in the latter campaign are basically donations. For these reasons, ICOs are referred to as crowdsales.

ICOs, once a game confined to a few, have taken off this year in China, attracting more players both innovators and scammers — and catching the attention of regulators.

The first token sale occurred in 2013, when Mastercoin sold its own digital tokens and raised 5,000 bitcoins, the most popular cryptocurrency.


Photo: Etherum token ICOs

In 2014, blockchain-based platform Ethereum raised more than 30,000 bitcoins. With the value of such virtual currencies surging this year, ICOs have lured more investors eager to make a quick buck. The value of Bitcoin had jumped 59 percent in August alone, while Ethereum had surged 88.2 percent.

This year, 65 ICOs in China raised 2.62 billion yuan from 105,000 investors in the country, according to a report from the National Committee of Experts on the Internet Financial Security Technology.

Though the boom has helped tech companies access much-needed funds for development, it has also created fertile ground for scammers looking to take money from ignorant investors under the guise of ICOs, which could threaten the country’s financial stability if left unchecked.

Governments in other countries have started to take note of risks.

In a notice on Aug. 28, the U.S. Securities and Exchange Commission (SEC) warned investors about potential scams involving stocks of companies claiming a relationship to or engagement with ICOs.

China’s latest regulation came as authorities have repeatedly highlighted the importance of containing financial risk as the country faces a build-up of debt, and booming new financial products challenge regulations.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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