‘Bitcoin will blow up’ – Wall Street rings alarm
Digital currency will not work, says JP Morgan boss
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
Jamie Dimon, the JP Morgan boss, far left; and a physical representation of the currency he condemns