Bitcoin fans fire back at Jamie Dimon after 'fraud' comment

Key Points
  • JPMorgan CEO Jamie Dimon called bitcoin a "fraud" earlier this week.
  • Bitcoin supporters say Dimon is totally missing its value.
  • Some believe Dimon sees bitcoin as the biggest future competitor to the banking industry.
Bitcoin supporters fire back at Jamie Dimon after 'fraud' comment
Bitcoin supporters fire back at Jamie Dimon after 'fraud' comment

If JPMorgan CEO Jamie Dimon was trying to set off the bitcoin community with his criticism of cryptocurrency, he succeeded.

On Tuesday, Dimon called bitcoin a "fraud," described it as "not a real thing" and said, "someone is going to get killed."

Crypto enthusiasts took little time in firing back -- on Twitter and on TV. We emailed Fred Wilson, a partner at Union Square Ventures and one of the first investors in bitcoin-related start-ups, to get his thoughts on Dimon's comments.

"You have to have an open mind to be able to see the future," Wilson said.

Venture capitalists and hedge fund managers that have joined in the crypto parade said that Dimon's stance is a reflection of Wall Street's defensive posture and attempts to downplay one of the biggest existential threats to the banking industry. Bitcoin is a decentralized digital currency that relies on blockchain technology and isn't controlled by banks or governments.

There's no doubt that it's a volatile trade. Bitcoin is up more than five-fold in the past year, but has dropped by 35 percent this month. So when Dimon says, it's "worse than tulib bulbs," which experienced a massive bubble and burst in the 17th century, Dimon is comparing bitcoin to other overhyped assets.

Here's what traders made of Jamie Dimon's bitcoin comments
Here's what traders made of Jamie Dimon's bitcoin comments

Balaji Srinivasan, the CEO of bitcoin startup, said Dimon is ignoring the functionality of bitcoin. While it doesn't have day-to-day price stability, lacks regulation and isn't accepted at the corner store, the currency works across borders, can be programmed to track transactions in a more secure way and doesn't require a bank account.

Srinivasan refers to bitcoin's "10X features," or properties that make it 10 times better than what's currently in place.

"With one 10X feature, you have a contender," he said. "With half a dozen, you have something special."

Dimon's comments at the Delivering Alpha conference followed a crypto clampdown in China, which reportedly plans to ban fundraising through initial coin offerings and trading of cryptocurrency on domestic exchanges. The news caused BTC China, one of the biggest online exchanges, to shut down on Thursday and sparked a slump in the price of bitcoin.

Meanwhile, Mohamed El-Erian, Allianz's chief economic advisor, echoed Dimon's sentiment this week and said bitcoin's price should be cut in half.

Dimon has long been skeptical of bitcoin and has repeatedly criticized the value of the cryptocurrency. On Tuesday, he said bitcoin will be in a "limited market" because governments typically like to take control of their currencies.

Dimon said the underlying blockchain technology has more value, and JPMorgan has been exploring various uses of it.

The more fundamental difference between Dimon and the tech community may be in the way they define the widespread adoption of the currency. Michael Moro, CEO of digital currency trading firm Genesis Trading, said bitcoin could rise in value even if it fails to gain mainstream traction in more advanced countries like the U.S.

That's because in much of the world, political and economic instability is so great that citizens are at risk of seeing their savings diminished or wiped out.

"It's entirely possible for bitcoin's price to be high because of the tremendous interest from South America, Sub-Saharan Africa and parts of Asia," he said.

Bitcoin price falls on reports of further Chinese regulation
Bitcoin price falls on reports of further Chinese regulation

Erik Voorhees, CEO of Swiss-based digital asset exchange ShapeShift, said Dimon's comment is a classic case of fearmongering because banks are concerned about bitcoin potentially taking away some of their core businesses.

"Jamie Dimon has every interest in the world in disparaging Bitcoin and working with his friends in government to regulate and suffocate it," Voorhees said.

The threat is real, according to Ari Paul, co-founder of the newly formed BlockTower Capital. He sees bitcoin eventually displacing offshore Swiss and Cayman bank accounts that JPMorgan and other banks have opened for their wealthy clients. Trillions of dollars are held in such accounts.

"Cryptocurrency serves this function an order of magnitude better than the existing banking system," Paul said. "I suspect that Dimon recognizes this, and is trying to delay the inevitable replacement of one his bank's core services by a far more efficient upstart."

The way most crypto enthusiasts see it, nothing Dimon says or does can stop bitcoin's inevitable expansion across the globe and into more industries.

"Bitcoin is a bit like flood water," said Union Square's Wilson. "It's hard to keep out of your society."

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