Cryptocurrencies: The King James Version
Many Americans can’t name more than two or three CEOs — Warren Buffett and maybe the Papa John guy, maybe their local NFL owner. J.P. Morgan Chief Executive James Dimon has spent years trying to change that.
Before he started ripping cryptocurrencies last month, Dimon was already a mainstay in the financial press, popular with the media and his bankers. He leads America’s biggest bank and is the only one of his peers who kept his job after the mortgage crisis. He is the son of Greek immigrants and is reliably quotable. He likes to be called Jamie.
The surge of bitcoin prices promises to be among the biggest financial stories of the year, and Dimon has climbed into the middle of it.
The timeline: On Sept. 12 he called bitcoin a fraud, recycled the anecdotes of it being used only by drug dealers, and predicted its imminent collapse. And then he said of any of his employees caught dealing in cryptocurrencies, “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.”
On Oct. 10, a crypto startup called Eidoo took out a not-cheap full-page ad in the Wall Street Journal inviting JP Morgan bankers to check them out. “Maybe Jamie Will Fire You” the ad read, “But, You’ll Be Free To Trade In The Crypto-World.”
It all came to a head this week when Dimon sheepishly addressed the controversy for the last time (he vowed.) He reiterated that he is a fan of the underlying blockchain technology, but added that without the support of a central bank the currency holds no value, and that people who buy it are “stupid.” He concluded by saying his “once-smart” daughter confessed to him that she owned two bitcoins, worth more than $10,000.
They both can’t be right. Dimon’s a smart guy but he is looking at this the wrong way. The value of a currency doesn’t exist on a government’s word but on the willingness of the market to accept it. Most people know the story of prewar Germany’s worthless deutschmarks and of Zimbabwe’s 89-septillion-percent inflation in 2008 (see chart). In June, Venezuela’s battered bolivar was reported to be worth less than the currency used in World of Warcraft.
Those currencies collapsed because the public lost faith in them. Bitcoin is currently climbing in value because it has that faith.
The dollar, the euro, the yen, the renminbi — they aren’t going anywhere. But as long as the acceptance of cryptocurrencies continues to broaden, their value will continue to grow.
Dimon says he doesn’t believe in that value, and he has survived enough decades to be highly credible. But with cryptocurrencies history doesn’t count for much. The drawbacks Dimon cites are part of their appeal. Cryptos exist independent of most government policy and banks’ control — independent, even, of Brexit and Trump and natural disasters. Understand that and you’ll understand its growth.