‘Bit­coin will blow up’ – Wall Street rings alarm

Dig­i­tal cur­rency will not work, says JP Mor­gan boss

The Guardian - - NEWS - An­gela Mon­aghan

Vir­tual cash ‘fit for drug deal­ers and mur­der­ers’

The boss of Wall Street’s big­gest bank, JP Mor­gan, has warned that the in­creas­ingly pop­u­lar dig­i­tal cur­rency bit­coin is only fit for drug deal­ers and is a fraud that will ul­ti­mately blow up like pre­vi­ous spec­u­la­tive fi­nan­cial bub­bles.

Jamie Di­mon said he would fire “in a sec­ond” any­one at the in­vest­ment bank found to be trad­ing in bit­coin.

Bit­coin is a vir­tual cur­rency that emerged in the af­ter­math of the 2008 fi­nan­cial cri­sis. It al­lows peo­ple to by­pass banks and tra­di­tional pay­ment pro­cesses to pay for goods and ser­vices. Banks and other fi­nan­cial in­sti­tu­tions have been con­cerned about bit­coin’s as­so­ci­a­tions with money laun­der­ing and on­line crime, and it has not been adopted by any gov­ern­ment.

How­ever, the grow­ing pop­u­lar­ity with in­vestors of bit­coin and other so-called cry­tocur­ren­cies, such as ether, is forc­ing reg­u­la­tors and banks to con­sider their im­pact on main­stream fi­nan­cial in­sti­tu­tions and mar­kets.

“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 said.

“If you were a drug dealer, a mur­derer, stuff like that, you are bet­ter off do­ing it in bit­coin than US dol­lars,” he said. “So there may be a mar­ket for that, but it would be a lim­ited mar­ket.”

Bit­coin has more than quadru­pled in value since De­cem­ber, hit­ting about $4,700 (£3,560) last month be­fore fall­ing back. It fell by more than 10% to be­low $4,000 af­ter Di­mon’s com­ments.

“It is worse than tulip bulbs,” Di­mon said, re­fer­ring to a spec­u­la­tive mar­ket bub­ble in Nether­lands from the 1600s. He pre­dicted big losses for those in­vest­ing in bit­coin. “It could be at $20,000 be­fore this hap­pens, but it will even­tu­ally blow up,” he said. “I am just shocked that any­one can’t see it for what it is.”

How­ever, the banker re­vealed his daugh­ter had bought bit­coin: “It went up and she thinks she’s a ge­nius now.”

Di­mon’s crit­i­cism of the cur­rency co­in­cided with a warn­ing from the UK fi­nan­cial reg­u­la­tor against a spec­u­la­tive frenzy in ini­tial coin of­fer­ings (ICOs), where in­ter­net star­tups are funded by in­vestors us­ing cryp­tocur­ren­cies.

The FCA said any­one in­vest­ing in ICOs should be pre­pared to lose all their money. “ICOs are very high­risk, spec­u­la­tive in­vest­ments,” it said. “You should be con­scious of the risks in­volved.”

ICOs have fu­elled a rapid as­cent in the value of all cryp­tocur­ren­cies, from about $17bn at the start of the year – with bit­coin mak­ing up around 90% of that – to a record high close to $180bn at the be­gin­ning of Septem­ber, of which bit­coin rep­re­sented less than half.

ICO trad­ing has been most fren­zied in Bei­jing and Shang­hai, with 65 ICOs launched dur­ing the year, rais­ing about £300m from 105,000 in­vestors, ac­cord­ing to the state-run news agency Xin­hua.

How­ever, the value of bit­coin be­gan fall­ing last week af­ter Peo­ple’s Bank of China banned ICO fundrais­ing and the launch of dig­i­tal cur­ren­cies, say­ing the prac­tice con­sti­tuted il­le­gal fundrais­ing.

ICOs have be­come pop­u­lar enough for celebri­ties such as Paris Hil­ton to jump on board. Last week the ho­tel heiress tweeted that she was in­vest­ing in Ly­di­anCoin, a dig­i­tal ad­ver­tis­ing busi­ness aim­ing to raise $100m (£75m).

Ear­lier this month, the co-founder of the un­der­wear brand Ul­timo, Michelle Mone and her busi­ness­man boyfriend, Dou­glas Bar­row­man, launched a prop­erty de­vel­op­ment in Dubai priced in bit­coins, with one-bed­room apart­ments to be priced at about 54 bit­coins.

Mean­while, a Lon­don prop­erty de­vel­oper, the Col­lec­tive, is al­low­ing its ten­ants to pay their de­posits in bit­coin – the first time the cryp­tocur­rency has been used in the UK res­i­den­tial homes mar­ket. Yann Que­lenn, an an­a­lyst at the on­line bank Swis­squote, said bit­coin “still has great po­ten­tial”.

“We think it is a pos­si­ble safe haven. Fewer than 0.01% of the world’s pop­u­la­tion has a bit­coin wal­let,” he said. “If this would reach 1%, the de­mand for bit­coin

would sky­rocket.”

Pho­to­graph: Chris Rat­cliffe/ Getty Images

Jamie Di­mon, the JP Mor­gan boss, far left; and a phys­i­cal rep­re­sen­ta­tion of the cur­rency he con­demns

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