JPMorgan Chase CEO Jamie Dimon thinks the multitrillion-dollar cryptocurrency market is a “decentralized Ponzi scheme.” That’s what he mentioned — underneath oath! — at a Sept. 21, 2022, Congressional hearing.
Does he have a degree?
I believe he does, sure. However his feedback have been extra nuanced than the headlines would counsel. Let’s break down what Dimon really mentioned about crypto and why it issues for you.
What Jamie Dimon Stated
Testifying earlier than the Home Oversight Committee, JPMorgan Chase CEO Jamie Dimon mentioned, “I’m a serious skeptic on crypto tokens — which you name cryptocurrencies — like Bitcoin. They’re decentralized Ponzi schemes, and the notion that’s good for anyone is unbelievable.”
Watch the clip and also you’ll see he can barely carry himself to utter the phrase “cryptocurrencies.”
Dimon’s feedback got here with a giant caveat although. He distinguished between cryptocurrencies and different blockchain-based tokens.
Proper earlier than his Bitcoin remark, he mentioned, “It’s a must to separate blockchain, which is actual; DeFi, which is actual; ledgers; tokens that do one thing…sensible contracts. … I’m not a skeptic [of those].”
So Dimon thinks crypto cash that declare to have intrinsic worth are scams, however he’s bullish on the blockchain.
Dimon has been skeptical of cryptocurrency for years. In 2017, he told CNBC that Bitcoin is a fraud “worse than tulip bulbs,” a reference to the Dutch tulip mania that created a bubble within the seventeenth century. He vowed to fireside any JPMorgan dealer caught buying and selling crypto as a result of “it’s towards our guidelines and they’re silly.”
So his “decentralized Ponzi scheme” remark got here as no shock. However he did make three essential factors elsewhere in his testimony.
Bitcoin vs. DeFi Tokens: Flipping the Script
Possibly essentially the most notable nugget to come back out of Dimon’s testimony was his obvious assist of decentralized, blockchain-based tokens.
Not like crypto tokens that act like conventional currencies — Bitcoin (BTC), Ethereum (ETH), and the numerous altcoins — these tokens really “do one thing,” mentioned Dimon. They assist smart contracts, person-to-person funds, metaverse transactions, and different financial features.
That is fascinating as a result of most crypto commentators have it the opposite manner. They suppose established cryptocurrencies like BTC and ETH are right here to remain and can develop into extra essential to the worldwide economic system within the coming years. They’re skeptical of decentralized finance and sensible contracts as a result of they’re not but extensively used and seem to not resolve real-world issues any higher than present options — like, say, legally binding contracts.
In abstract, in Dimon’s view:
|Cryptocurrencies like BTC
|BlockchainLedgersDeFiSmart contracts“Tokens that do one thing”
Bitcoin Isn’t a Particular Case
Practically as notable is Dimon’s implication that there’s no distinction between Bitcoin and different cryptocurrencies.
This isn’t a well-liked opinion. Most crypto specialists, even these on the skeptical aspect of the spectrum, suppose Bitcoin, Ethereum, and so-called stablecoins like Tether (USDT) are actual belongings that aren’t going anyplace. They won’t be investment-grade within the sense that U.S. Treasury payments are investment-grade, however they’re not outright scams.
Dimon disagrees. He needs nothing to do with any crypto token that calls itself a foreign money — with one key exception.
Stablecoins Have Potential
Dimon sounded much less skeptical about stablecoins, which peg their worth to real-world belongings just like the U.S. greenback. He likened them to money market funds and sounded supportive of federal regulation to make them safer for on a regular basis customers.
In reality, JPMorgan has a proprietary token that features lots like a stablecoin. Generally known as JPM Coin, the financial institution makes use of it inside a closed system to assist company treasury companies, cross-border funds, and monetary transfers between banks.
What do Jamie Dimon’s crypto-skeptic feedback imply for the typical investor?
I believe he’s extra proper than mistaken, however I’m cautious about his obvious enthusiasm for stablecoins.
He’s Principally Right About Crypto Cash …
Current occasions have demolished crypto boosters’ go-to arguments:
- “It’s a retailer of worth!” No. BTC was down almost 60% in 2022 as of Sept. 26. ETH was down over 64%. The S&P 500 index? Down about 24% for the 12 months. (Nonetheless brutal.)
BTC Since Jan. 1, 2022
ETH Since Jan. 1, 2022
S&P 500 Since Jan. 1, 2022
- “It’s a hedge towards inflation!” No. See above.
- “It’s untraceable!” Ilya Lichtenstein and Heather Morgan, who allegedly masterminded a scheme to launder some $4.5 billion in crypto, would beg to differ. So would former TerraUSD boss and current international fugitive Do Kwon, whose alleged shenanigans helped spark the crypto crash of early 2022.
- “It’s tremendous safe!” Nah. If you would like safety, preserve your cash underneath the mattress.
… However the CEO of a Megabank Is In all probability Biased
Once more, the actual information out of Dimon’s testimony was his reward for sensible contracts, DeFi, and “tokens that do one thing.” That, and his obvious embrace of well-regulated stablecoins.
Possibly Dimon is simply calling it like he sees it. Or possibly he sees one thing in it for himself and his employer. (Which, let’s be actual, are one and the identical — Dimon is the undisputed face of JPMorgan Chase and possibly the best-known big-bank CEO.)
Dimon’s apart that Chase already has a quasi-stablecoin for inner use wasn’t information to individuals who comply with the financial institution, but it surely reveals that they’ve put critical assets behind a blockchain-based product.
In reality, Chase’s Onyx subsidiary is difficult at work on a complete blockchain-based funds structure. Onyx calls itself “the primary world financial institution to supply a blockchain-based platform for wholesale funds transactions.” Though it nonetheless largely operates behind the scenes, a extra predictable regulatory framework for blockchain merchandise may give it the inexperienced mild to enter the patron market.
And make a boatload within the course of.
Backside Line: Don’t Bounce on DeFi Simply But
Danger-averse retail traders — together with yours really — have lengthy been skeptical of blockchain-based merchandise partly as a result of the area is a monetary Wild West the place everyone seems to be nameless (or thinks they’re) and fraud is rampant.
So it’s legitimately encouraging that JPMorgan Chase and other big banks are embracing the blockchain and advocating for wise regulation of decentralized finance.
However there’s nonetheless an extended strategy to go. Jamie Dimon mentioned his piece on the form of Congressional listening to that precedes a bunch of different Congressional hearings that will or might not produce precise draft laws. Which can or might not come to a vote, not to mention develop into legislation.
Till then, crypto and the blockchain stay wild. Which implies it is best to tread rigorously. No, don’t put your life financial savings right into a high-risk Bitcoin short, however don’t put a cent greater than you may afford to lose into crypto both.