Bitcoin: Boom or Bust

'Wolf of Wall Street' warns investors of the next big trap: Bitcoin

Key Points
  • Jordan Belfort, who ran a now-defunct Long Island brokerage and pleaded guilty to stock manipulation, is predicting disaster for bitcoin.
  • His story was depicted by Leonardo DiCaprio in Martin Scorsese's "Wolf of Wall Street."
  • "There's a lot of really honest people who are going to get slaughtered," Belfort says.

Former penny-stock broker Jordan Belfort spent nearly two years in prison for scamming investors. Bitcoin, he has no doubt, is the next trap that could leave some retail investors penniless.

"I was a scammer. I had it down to science, and it's exactly what's happening with ," he told CNBC in a documentary airing Monday. "The whole thing is so stupid, these kids have gotten themselves so brainwashed."

Belfort ran an over-the-counter brokerage house on Long Island called Stratton Oakmont, and pleaded guilty in 1999 to manipulating investors into buying stocks that eventually turned out to be worthless. The former broker's story was depicted by Leonardo DiCaprio in Martin Scorsese's "Wolf of Wall Street."

In order to manipulate markets, Belfort highlighted the need for demand. "Back in the day" he had an army of people calling around the country and the world persuading people to buy stocks he would later "dump" and profit off of.

In the internet age, that manipulation tactic has become easier. Cryptocurrency fundraising known as initial coin offerings in many cases turned out to be frauds and have become the target of Securities and Exchange Commission investigations. Google, Facebook, and Twitter have outlawed advertising of ICOs on their platforms.

"This thing is going to evaporate like a mirage," Belfort said. "There's a lot of really honest people who are going to get slaughtered."

Bitcoin is often described as anonymous because people don't need to give any identifying information to send or receive it. While transactions are recorded on a public ledger, they're listed under an alphanumeric code known as a "public key," which doesn't reveal the trader's identity.

Belfort said that anonymous structure is cause for concern.

"It's not that bitcoin's a scam but its nature allows scams to occur," he said in a separate interview on CNBC's Power Lunch Monday. "It's a dark market, you can't see what's going on behind the scenes. People dive into that and use it to rip others off."

He predicted that it could go bust within the year, and when it does, it will be "the bust heard around the world."

Belfort also challenged bitcoin's security, the idea that it could dissolve a need for central banks, and the argument that governments would allow an anonymous currency without regulation.

"Central banks don't want it, they've spent all this time trying to stop money laundering, why now allow something that's anonymous, and lends itself to making money-laundering easy?" he said. "I don't believe there's any shot in the world they'll let that happen."

Belfort is in good company. Corporate leaders including Jamie Dimon, Ray Dalio and Bill Gates have challenged the validity of bitcoin, and Warren Buffett famously ahead of the Berkshire Hathaway shareholder meeting in May.

— Watch the CNBC Original, "Bitcoin: Boom or Bust" on:

2: Hulu (Hulu subscription needed)
3: Yahoo! View (Free)
4: VOD