Criticisms of bitcoin by JP Morgan Chase’s boss have been denounced by a UK academic as “ironic” and “hardly surprising” considering the impact bitcoin could have on financial intermediaries.
The cryptocurrency “is a fraud” and will blow up, Jamie Dimon, JPMorgan Chase & Co chief executive, said on Tuesday after the bitcoin price fell more than 30% in two weeks.
“The currency isn’t going to work. 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,” Dimon reportedly said at a bank investor conference in New York
“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed… Currencies have legal support. It will blow up,” he continued.
Dimon also said he’d “fire in a second” any JPMorgan trader who was trading bitcoin, noting two reasons: “It’s against our rules and they are stupid.”
The currency’s value has tumbled after the Chinese government cracked down on domestic exchange websites, which lead one of the largest sites to announce it would stop all trading at the end of September.
David Coker, lecturer in accounting, finance and governance at Westminster Business School, believes the Chinese crackdown on Bitcoin won’t work and says the battle of bitcoin vs banks is nothing new.
“A financial intermediary criticising and predicting doom for an innovation that removes intermediaries from financial transactions? Hardly surprising”
Coker also questions whether Jamie Dimon’s criticism of the cryptocurrency will apply to JP Morgan’s own proprietary crypto ledger Quorum.
“Jamie Dimon’s recent comments regarding bitcoin were particularly ironic – a financial intermediary criticising and predicting doom for an innovation that removes intermediaries from financial transactions? Hardly surprising,” says Coker.
“What is surprising however is that even as Mr Dimon openly criticises bitcoin, JP Morgan is quietly advancing its own, proprietary crypto ledger, Quorum,” he continues.
Quorum is based on cryptocurrency Ethereum, a blockchain project broadly similar to but somewhat different to the blockchain that backs bitcoin.
“One can’t help but wonder if Mr Dimon’s comments regarding cryptocurrencies would apply to JP Morgan’s own offerings, should they come to market?” says Coker.
“The Great Firewall of China won’t be able to block bitcoin traffic originating on blockchain’s decentralised network”
He argues that the Chinese regulator’s crackdown in bitcoin exchange websites is not surprising either as China has been trying to put a stop on capital flight for several years now.
The crackdown will not be effective, according to Coker, for three reasons.
“First, anyone in China with a valid public key – a large numerical value that is used to encrypt data and is generated by a software program or provided by a designated authority – can still receive and sell bitcoin. Keys are freely available for the asking. The Great Firewall of China won’t be able to block bitcoin traffic originating on blockchain’s decentralised network,” he says.
“Second, it is well known foreign travel by Chinese citizens has surged in response to the crackdowns on capital flight. Any Chinese citizen traveling to the US or Western Europe can easily purchase bitcoin at any one of several thousand public ATMs selling the cryptocurrency.
“Third, the history of economics teaches us capital always finds a way. Financial markets exist to channel capital from where it is to where it wants to go. Much as land yields to the flow of water, regulations restricting the free flow of capital eventually yield as well. Capital always finds a way,” Coker concludes.
“Cryptocurrencies (despite what Mr Dimon may say) make the existing banking systems look antiquated, in the same way email does writing a letter”
On the fall in bitcoin price, Ryan Davies, cryptocurrency investor and finance technology specialist at a top tier bank, says: “Markets go up and down. When they have been shooting up, it is normal that they consolidate, and regroup a bit. Traders try to ‘take profits’.
“Currently there is news from China which the market is reacting to; markets move on sentiment and rumour, as traders try to anticipate what the market will do.
“Cryptocurrencies (despite what Mr Dimon may say) make the existing banking systems look antiquated, in the same way email does writing a letter, by quill pen, and sending by messenger, on horseback,” he tells The Global Treasurer.
Davies also argues that bitcoin will retain its long-term value due to the technology behind it called Nakamoto proof of work, which is “still a computer science breakthrough” and that huge advances are being made in cryptocurrency ecosystems at present.
Jelurida is one of these companies developing cyrptocurrency and blockchain technology. It has recently launched cryptocurrencies NXT, Ardor and Ignis based on a more scalable form of blockchain than the technology bitcoin rests on.
Tomislav Gountchev, lead software architect and developer at Jelurida, says: “Hypothetically, one way the Chinese (or any other) government can crack down on bitcoin or other major proof of work blockchains is by shutting down mining farms, because they have physical hardware that can be confiscated or electricity supply that can be cut off.
“A government can also shut down centralised exchanges, which would shift users to fully decentralised exchanges running on the blockchain itself, and Nxt and Ardor already provide such decentralised exchange functionality.
“As for the effect on cryptocurrency prices and our initial coin offering (ICO), I think we are in a flash crash at the moment, but the market should eventually recover,” he tells The Global Treasurer.