I will rebut various elements of a rather poor article arguing that Bitcoin will be around forever. It might well be — I don’t know — but I do know that this article does not add any light to the topic. It appeared here:
The random banker bashing in the headline might give you an initial suspicion about who is likely to be right here.
The first rhetorical question the article asks is “Would Jamie Dimon really sack traders who netted a 1,000% return in less than two years? The bank’s shareholders wouldn’t approve”
The answer to this is definitely yes. Return alone is an inadequate assessment of trader performance. We must look at risk-adjusted return. A guaranteed 10% return is better than anything lower than a 50% chance of 20%. If the trader made his 1000% by betting on a single horse, he took an enormous risk to make his 1000%. The shareholders would certainly approve of Dimon sacking such a trader and in fact would demand it.
We then move on to a ‘fake news’ type criticism in which the author attempts to show that Dimon is biased. He writes “Although JP Morgan was by no means the most leveraged of the banks, it still took bailout money, and, as its CEO, Dimon and bitcoin will inevitably be philosophically opposed.” So this is a set of claims which don’t stack up. Firstly, JP was bailed out post-crisis (fine). Secondly, Bitcoin was invented in response to this crisis (I don’t know, but let’s accept this). Thirdly, JP must be opposed to everything that happened as a response to the crisis. Conclusion: JP is opposed to Bitcoin forever. Premise Three is obviously false. What can be said to even make it plausible?
The next section of the article accuses Dimon of not understanding Bitcoin because he says it is a fraud. The author then admits that Bitcoin is in fact extensively used for fraudulent and criminal purposes but it is not itself a fraud. This is parallel to those arguments against gun control which say that guns don’t kill people, people do. I will leave that there.
I will close by criticising a remarkable paragraph which packs in a lot of errors and bad arguments. The author writes: “Dimon declares that we will use the technology – blockchain technology – but that bitcoin will be shut down. That’s like saying we will use football pitches, but football players will be banned. One comes with the other. In any case, you can’t just shut bitcoin down. It’s a decentralised, distributed network. That’s the whole point of its design. There is no central point of failure.”
This is very strange. Take the football analogy first. There are two major problems with it. As a parallel, it may or may not work. Assume it works. Let’s be generous. There are alternative uses for football pitches. They have been used as prisons and they were used as holding centres post-Katrina. Other uses could be imagined. We could land helicopters on them. So even if Bitcoin ls like playing football and the blockchain is like a football pitch, we can do other things with football pitches and we could do other things with the blockchain. Strikingly in fact, this is where much of the excitement exists. There are many potential extremely useful applications of a distributed ledger technology such as property registers and shareholder transaction records. These would be interesting because they would be highly transparent and resistant to corruption and bureaucratic sloth.
The second argument in here is equally poor. The claim is that you can’t shut Bitcoin down because it is decentralised. What this may actually bring out is that you cannot shut down the servers behind Bitcoin because they are decentralised. But that isn’t what Dimon says. He says that “There will be no currency that gets around government controls.” What if governments made Bitcoin possession and use illegal and banned its use in any transactions? They could do that and then what Dimon has pointed out is true but no-one has to go around shutting down distributed servers.
I conclude that the author has done nothing to show that Dimon is wrong or that Bitcoin is not a bubble and will persist. If you would like to read a higher standard of discussion on financial markets which includes more rigorous argument and some familiarity with the facts, you will want to buy my new book: