This article was posted by Yahoo this morning, covering the recent accusations of JPMorgan strategist Marko Kolanovic on how Bitcoin and cryptocurrency are pyramid scheme-like. Here is his reasoning:
This is not the first time we have heard critical attacks on digital currency, especially Bitcoin. However, personally this is the first time I have heard cryptocurrency being compared to that of a pyramid scheme. Do I agree? No, I think they are many gaps in the some of Kolanovic's logic. However, his claim is quite interesting, and he addresses some amusing points, but with a carping attitude. Using words such as "fraudulent", and calling crypto investors "Uniformed" and "stupid", it definitely strikes a nerve with many of us. As stated, since Bitcoin and other related technologies are going to undermine the primacy of the entire banking system, of course someone like him is going to dismiss it.
Jamie Dimeon calls it a Fraud
Even JP Morgan CEO recently attacked Bitcoin, calling it a "fraud" that will blow up eventually...
Unlike Marko Kolanovic, Dimon doesn't necessarily attack the technology behind it. He is attacking the currency aspect of it. He compares it to the famous Tulip crisis of the 1600's. (Image from the movie Wall Street).
What happened during what was called "Tulip Mania"? The value for tulips skyrocketed, and then crashed. As Dimon points out, "the value of Bitcoin could reach $100,000 before it crashes. But he does firmly believe it will crash. Well is that not the case with any other currency or asset out there? The stock market could crash at any time. The price of oil, silver, corn, diamonds, ect.. could crash at any time as well. I guess my point here is, yes of course it could crash. But I would rather put my faith in technology that has the potential to completely revolutionize the monetary system. I am speaking not just of Bitcoin, but of blockchain in general.
Used for Illicit purposes
Simeon states that "Governments are waiting for Bitcoin to be used for illicit purposes before they 'shut it down'. I think that has already happened and will continue to happen. I do not believe that is something that can be completely avoided. As cryptocurrency becomes bigger and creates a global widespread use, I think security issues such as these will be tackled with better efficiency.
Bitcoin is Speculation
Yes, I cannot disagree. At the moment, Bitcoin is mostly speculation. This is a vulnerability, yes. It is essentially based upon supply and demand. But there is nothing wrong with speculation; the actions of speculators help to add market liquidity and to determine the market value of assets. In my honest opinion, Bitcoin is almost more of an asset than a currency, like gold or silver. However, usually the asset being valued also has an actual underlying use: you can invest in gold or use it to make jewelry or electronic components. Bitcoins have no uses other than allowing people to hide wealth, conceal (often illegal) transactions, and make and lose money by trading them. The coin is still working on transforming itself into a currency that can be used for global payments, ect. It just hasn't reached that full implementation point yet. Whether it reaches that point or not is unknown.
Another issue with BTC is that it is not the most stable of coins and its processing time is drastically slow. I believe that over time, a more stable coin will take over and dominate the crypto world. But this will happen over time.
I want to look at both ends of the spectrum here, because while there are flaws with Bitcoin, there are also great pro's. I do support Bitcoin fully, but I think it has problems to fix. While BTC is the grandfather of crypto, if its flaws are not solved, another stronger coin will become top dog.
Not a Real Thing?
Yes Mr. Dimon, Bitcoin is a real thing. I do not completely disagree with you on many of your points. However, I completely disagree that it is a "Pyramid Scheme". That goes a little too far. I think that you are worried Mr. Dimeon. Worried about the potential problems that Bitcoin can caused to your business realm. Be scared, because you should be!
*Disclaimer:
JP Morgan is not refuting cryptocurrency and blockchain as a whole, just Bitcoin. In February, several business giants, including JP Morgan, united to build business-ready software behind Ethereum. The group is called the Enterprise Ethereum Alliance.
Your Thoughts
Give us your comments and let us know your opinion on this issue. Where do you see Bitcoin headed in the near future?