JPMorgan CEO Jamie Dimon is at it again, calling bitcoin worthless and predicting its spectacular collapse. As a hedge-fund manager focused on the new asset class of bitcoin and other digital currencies, I couldn’t disagree more.
Perhaps my view is warped by my business interest, having taken great risk to shift my career focus to this new asset class. But we have seen this movie before with the emergence of the internet.
In the early 1990s, a fledgling trader moved to New York to make his mark on Wall Street. The internet, as I knew it, existed on a single computer at the end of the trading desk. This “internet” appeared only to be useful for something called email, which, to a trader with telephones on each ear seemed like a novelty. In hindsight, it’s abundantly clear that I was too young and inexperienced to understand the revolution that was happening right before my eyes.
My view is not that Jamie Dimon doesn’t understand the disruption that is happening in financial services — on the contrary, he is acutely aware. What is happening is that the CEO of one of the world’s largest financial institutions is threatened by software that was developed to upend his position at the top of the food chain.
It’s important to understand that bitcoin and other digital currencies are simply software, a computer program designed to automatically verify and transfer value around the world — exactly the role that JPMorgan currently plays. In fact, JPMorgan moves about $6 trillion a day and they are pretty good at it — but bitcoin and blockchain technology are proving to be better.
In 1995, Newsweek published an article by Clifford Stoll titled “Why the Web Won’t Be Nirvana.” In this now infamous piece, Stroll wrote:”[N] o online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.”
In 2012, 17 years after this story appeared, Newsweek stopped printing its magazine and went fully digital, or what Mr. Stoll might characterize as an “online database.” To his credit, Clifford Stoll has acknowledged his very public mistake.
Newsweek wasn’t the only one who got it wrong. Robert Metcalfe, the inventor of Ethernet and creator of the eponymous Metcalfe’s Law wrote this in InfoWorld 1995: “I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse.”
The parallels to Jamie Dimon’s comments are uncanny. Just two years later at the World Wide Web Conference, Metcalfe literally ate his words when he blended a copy of his column with water and consumed it with a spoon.
Of course, Jamie Dimon’s grouse isn’t with the technology behind bitcoin called blockchain, it’s with the currency. He believes that the larger bitcoin grows, the more of a threat it becomes to governments and they will shut it down rendering the currency worthless. The recent ban in China might be viewed as supportive of his view. If other countries were following China’s lead, then Dimon would be onto something, but the major financial hubs of the world have embraced bitcoin and other digital currencies.
In April 2017, Japan enacted a law that declared bitcoin as legal tender and brought digital currency exchanges under the supervision of Japan’s Financial Services Agency. South Korea has officially legalized international bitcoin transfers and is currently working on a regulatory framework for this new asset class. According to CryptoCompare, in September 2016, China accounted for 92% of bitcoin trading volume, Japan 12% and South Korea only 0.4%. Today, Chinese bitcoin volume is non-existent ,while Japan accounts for 50% of the volume and South Korea is 6%.
It would be worrying if other bank CEOs were echoing Dimon’s warning, but they are not. In fact, Ashok Vaswani the UK CEO of Barclays told CNBC in June that the bank has approached regulators about bringing bitcoin “into play.” In February 2017, Mizuho Financial, Sumitomo Mitsui Financial and Mitsubishi UFJ invested in bitFlyer, Japan’s largest bitcoin exchange. In August 2017, bitFlyer opened an office in San Francisco and announced it had received approval to operate in 34 U.S. states. It plans to launch its U.S. exchange this fall.
Of course, Dimon could be correct and this trend might reverse. In that case, I will be the one blending his words into a smoothie and drinking it. But, if I learned anything during my formative years on Wall Street, it’s that “nothing can stop an idea whose time has come.”
A version of this article initially appeared on CNBC.com.
Brian Kelly, the founder of BKCM LLC, a hedge fund which manages digital assets, and a CNBC contributor. Kelly is the author of “The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World.” @BKBrianKelly.