“We don’t like their sound, and guitar music is on the way out.”
— Decca Recording Co. rejecting the Beatles, 1962.
Bitcoin, Ethereum and other cryptocurrencies dipped today after JP Morgan chief Jamie Dimon called Bitcoin a “fraud that will eventually blow up” at a New York conference. He said it is “worse than Tulip Mania” and “only for drug dealers, murderers and people living in North Korea or Venezuela.” He even threatened to fire any of his employees that would dare to trade and profit from it, citing their “stupidity.”
Someone seems threatened by cryptocurrency and is lashing out in a very hostile way.
Of course, those criticisms make little sense and the irony is thick coming from Dimon. Lest we forget, his bank made predatory loans, took out-sized risks with complicated financial derivatives, contributed to the crash of the economy and wiped out the savings of countless Americans.
Then he needed a taxpayer bailout, on top of unlimited credit at near-zero rates, just to survive. He did not go to jail, despite clear crimes, negligence and breach of fiduciary duty. Now he has the nerve to speak out against Bitcoin, as if he is an authority on the topic or has an ounce of credibility left.
John McAfee, whose company MGT Capital Investments mines the cryptocurrency, said he respects Dimon and people in his position “are not idiots,” but he challenged Dimon’s criticism.
“You called bitcoin a fraud,” McAfee told CNBC’s “Fast Money” on Wednesday. “I’m a bitcoin miner. We create bitcoins. It costs over $1,000 per coin to create a bitcoin. What does it cost to create a U.S. dollar? Which one is the fraud? Because it costs whatever the paper costs, but it costs me and other miners over $1,000 per coin. It’s called proof of work.”
“And the fact that bitcoin is consistently growing in its use and its value has to say something,” McAfee said. “Sure it will rise and fall as all new technologies are. But at the same time, it is certainly not a fraud.”
I doubt Dimon thinks it is a fraud either, as he has attempted to patent a “bitcoin alternative” multiple times without success. It is only a fraud to him because he and his banker/government buddies can’t control it.
The conflict of interest is clear here, as Bitcoin threatens the profits and potentially the very existence of big banks like the one he runs. Yet, Dimon admitted that his daughter bought some and thinks she is a genius. That comment drew some laughter from the crowd, but his daughter has outperformed the vast majority of JPM’s high-paid ivy league traders over the past few years. Ouch! At least one member of the Dimon family is well hedged. Then again, we suspect Mr. Dimon is engaging in the time-honored trading of “do as I say, not as I do.”
Dimon’s comments came as Bitcoin was already feeling pressure from threats by the Chinese government to ban ICOs and exchanges. Those that still look up to Dimon as some type of reputable investor may have been spooked by his comments and contributed to the current sell off. But let’s take a quick look at his track record of predictions about Bitcoin.\
On January 23rd, 2014, he said that “Bitcoin is a terrible store of value.” The price was $854 at the time and has since gone up roughly 368%, even after the latest correction.
On November 11th, 2015, he said that “Bitcoin will not survive.” The price was $388 at the time and has since gone up 931%!
On January 20th, 2016, he said that “Bitcoin is going nowhere.” Yet it proceeded to climb from $419 on that day to $5,000, before correcting back to around $4,000 today. That is a gain of 854% in under 2 years.
Meanwhile, the company that he runs, JPMorgan (JPM), has generated a return of just 51% for investors over the past 3 years. Not a bad return to be sure, but nowhere near the rates of return that Bitcoin investors have enjoyed. Furthermore, investors holding JPM over the past six months are sitting on a loss, while Bitcoin investors are up 233% in the same time period.
The Bitcoin price slid to a low of around $3,750 this morning, but has since bounced back to $3,900. The technical chart below highlights the key support and resistance levels to watch going forward.
The price point of $3,750 was a key support level last month and again today during the current sell off. This double bottom increases the odds of $3,750 holding. If is fails, we will be looking for support at $3,500 or $3,200 to hold and buying aggressively at these prices.
I think we have likely seen the worst of this correction, but we can’t rule out a drop to the $3,250 – $3,500 range before it finally bottoms. The price has already dropped 25% from the recent high, but past corrections were in the 30 to 35% range. A drop to $3,500 would be a 30% correction and a drop to $3,250 would be a 35% correction from the high of $5,000.
While some degree of profit-taking is normal and healthy for any bull market, I believe this sell-off is being driven largely by unsubstantiated FUD (fear, uncertainty and doubt). China has not outright banned ICOs or exchanges, but is more likely to announce regulations in the weeks ahead. This should not have come as a surprise to anyone and may actually weed out some of the scams in this sector.
The major Chinese exchanges have yet to receive any orders to shut down from Chinese authorities. Several Chinese ICOs continue, although they have excluded Chinese citizens from participating until the government makes a clearer ruling. Bitmain’s Jihan Wu explained to his Twitter followers that China has not banned Bitcoin. Further Mr. Wu detailed that exchanges needed licensure and the same thing would happen in the U.S. if trading platforms didn’t have a license.
Furthermore, selling pressure derived from Dimon’s comments is not likely to last. He was back at it again today, commenting about how Bitcoin is a “pyramid scheme.” Allianz advisor Mohamed El-Erian joined in by saying that “Bitcoin will not see widespread use and should be valued at half of what its worth today.”
It almost seems like coordinated media attacks after a long period of quiet. I think the attacks will likely increase and I view this development as a clear sign that the legacy financial players are very worried. These comments are a contrarain buy signal for long-term investors in my opinion.
In addition to buying more BTC and ETH today, I also established a position in (reserved for premium members) on the dip. This company is banking the unbanked and already had a robust business operation in Southeast Asia well before they incorporated blockchain technology and launched their ICO.
Speaking of ICOs, I am looking to participate in the following three offerings: (reserved for premium members). If you like these companies and want to invest in their crowdsales, you should visit their sites, enter your email and join their social media pages. Some require that you register and whitelist yourself ahead of the actual sale in order to participate.
All of my cryptocurrency research (ICOs and exchange-listed buys) can be found on the GSB Cryptocurrency Tracker. This page is free to the public until the end of September. At that time it will become password-protected for exclusive use by Gold Stock Bull premium members. You can sign up to get all of our research into precious metals and cryptocurrencies for just $99 by clicking here.