JP Morgon Boss Jamie Dimon has caused a lot of anger with his declaration that Bitcoin is a fraud. On his announcement pretty much every major cryptocurrency went into a fairly major nosedive. While his motives might be suspect he does bring up some valid points about the viability of Bitcoin. Luckily for us Mr Dimon is wrong, Bitcoin is not a fraud.
Emerging technologies like Bitcoin threaten the hegemony of established institutions like banks
In its purest form a cryptocurrency uses blockchains in order to process transactions. This allows Bitcoin and Ethereum to fulfill contracts and make payments without ever involving a middle man. In essence the long term aim of cryptocurrency is to take power away from men like Jamie Dimon and institutions like JP Morgan and decentralize it. It might just be us but so far it feels like Bitcoin is not a fraud so much as a threat to the finance sector.
This makes Bitcoin, Ethereum and other cryptocurrencies very disruptive technologies. They are an experiment in undermining the monopoly on money that banks currently enjoy. Due to its fairly experimental nature it’s not surprising that there are a lot of arguments about the direction that cryptocurrencies should take, resulting in many different concepts that can seem chaotic.
The fact that the experiment could succeed has unsettled financial institutions. This would explain why JP Morgan attempted to patent their own version of Bitcoin back in 2013. It would also explain why there is growing interest in cryptocurrencies from various banking institutions. They realize the potential that cryptocurrency has to disrupt their business model so they are seeking to either undermine it, or get a slice of the pie so they’re not left behind.
Cryptocurrencies are new and experimental, this makes them risky
Mr Dimon’s assertions that “It will blow up” are somewhat vague. Especially as he believes it could even get to $20,000 before that happens. He does however raise a point that Bitcoins, like any other investment, should be considered a far larger risk than many investors believe them to be. Cryptocurrencies have drastically lowered the bar to investment which means that inexperienced investors are liable to put their money into something without truly understanding how it works or what its potential is.
This trend is most obviously demonstrated with initial coin offerings (ICOs). Investors have poured money into many ICOs that have nothing resembling a real white-paper. Often their pitches resemble a marketing plan rather than a realistic funding request. Unfortunately many inexperienced investors don’t realize this and throw their money at a project without doing their due diligence. This represents a major risk for investors as they have no legal protection should the project fail or turn out to be fraudulent. This could lead to a bubble that bursts suddenly and results in a large number of people losing their money.
This fear has led China to completely ban ICOs and it isn’t impossible that other countries will follow suit. Unfortunately for cryptocurrency it’s Achilles heel is regulation. In order to ever truly become mainstream Bitcoin and other currencies will need to accept regulations. However when regulation begins to take place there is always a sense of panic among investors and Bitcoins the market takes a major downturn.
Thankfully these downturns appear to be temporary and even now Bitcoin has begun to stabilize after its marked drop. This is important because it shows that cryptocurrencies are able to handle the initial shock of regulation, which will help them survive in the long term.
Bitcoin is not a fraud but it is a risk. Any investment could result in your losing your money and cryptocurrencies are among the riskier choice. If you follow the golden rule of investment you’ll be fine. Never invest money that you are not willing to lose.