It’s Time For JPMorgan To Start Trading Bitcoin

So batsh*t Bitcoin surged above $5,000 for the first time overnight, and at one point blew through $5,200 apparently on its way to $500,000 which we certainly hope it will hit sooner rather than later in order to help us all avoid this rather unpalatable scenario:

BitcoinMC

Here’s the chart:

Bitcoin

Now for one thing, that YTD “performance” (if you want to call it that), is all kinds of absurd. Just to be clear, when you read posts/articles penned by Bitcoin proponents documenting that inexorable ascent do note that if that were a stock, those same people would be shouting from the rooftops about “fraud” – even if they had no evidence whatsoever to support such an accusation.

 

In this case, on the other hand, there are very real reasons to believe that the entire model is akin to a pyramid scheme. Recall this from JPMorgan’s Marko Kolanovic:

Another worrying aspect of cryptocurrencies are some parallels to fraudulent pyramid schemes. Initiator of a pyramid scheme often ensures ownership of a disproportionally large share of future profits. For instance, in the case of bitcoin, it is believed that an unknown person (or persons) known as ‘Satoshi Nakamoto’, before disappearing, mined the first 1-2M coins or ~10% of the coins that will ever exist ($4-8bn USD current value).  While initial mining requires a negligible effort, the benefits for subsequent participants start diminishing. Mining becomes progressively more difficult, and eventually unprofitable, marking the likely end of a scheme. A way around this in Pyramid schemes is to bypass the original chain and start a new one of your own. The cryptocurrency analogy would be to start a new coin if it is more profitable than mining the existing one. This can work as long as there are enough willing and uninformed buyers.

Anyway, there’s actually a reason we wanted to go back over this. This morning, JPMorgan reported results and the FICC number was funny. Specifically, 3Q FICC sales & trading revenue came in at $3.16 billion, missing estimates. That was down a rather precipitous 27% y/y and the culprit was exactly what you would expect: “low volatility and tighter credit spreads.”

Now recall what we said earlier this month the very second WSJ reported that Goldman is considering opening a Bitcoin trading operation:

Goldman is going to try and prove that they’re still “the smartest guys in the room” (and not in that Enron kind of way) by being first to the party and making a fortune at a time when the bank’s commodities business is in turmoil and its FI business is similarly struggling. 

And then, after Lloyd Blankfein “clarified” his bank’s position on Twitter by saying he’s “still thinking” about Bitcoin, we “clarified” as follows:

The only thing Goldman is “thinking” about here is whether or not the profits to be had from diving head first into an “asset” where there’s all kinds of volatility outweigh whatever reputational damage would accrue to the firm when something invariably goes wrong.

Well unless cross-asset volatility picks up in a hurry, it looks like the irony for JPMorgan is that they might want to consider following Goldman over to the crypto “dark side,” because if lack of vol. is the problem, here’s one possible “solution”….

BitCoin

Of course Kolanovic already knows this. After all, in the very same noted excerpted above, he also said this:

Bitcoin volatility is ~100%, or ~15 times the average currency volatility.

 

Advertisements

4 thoughts on “It’s Time For JPMorgan To Start Trading Bitcoin

  1. The big difference from a pyramid scheme to crypto coins is that the crypto’s actually provide utility and require actual work to build out the code, mining rigs and apps. In much the same way I could open my own hamburger shop and compete with McDonald’s… McDonald’s isn’t a pyramid scheme just because they started the company with a controlling share of their stock. The initial 1 million coins is not even a majority of the existing 16 million coins.

    The title just doesn’t fit. Bitcoin may win or lose the crypto king title, governments may try to regulate it out of existence and people may be too dumb to be trusted with crypto money but it isn’t a pyramid scheme.

    As for trading it, I cannot imagine GS or JPM sitting this out forever. You’re talking about people who put aluminum on trucks and drove it around to make it look like there was an aluminum shortage. Even if it was a pyramid scheme they would want in.

  2. Following up on my posts earlier this week, the charts never lie…. Bitcoin indeed blasts to new highs 5200+ even sooner than expected.

    Time for the naysayers to admit defeat and bow to the arbitrage of the market.

    Also helps that Singapore recently stated that btc and crypto will remain legal and exchangeable for any currency in perpetuity. Hong Kong quickly rapidly followed to keep up.

    So much for China banning bitcoin, lol… WRONG!! … at least for offshore if not onshore, lol…. gotta love it!!

    (for the geographically challenged, singapore and hong kong are 90% chinese, the latter actually chinese territory now)

Speak On It