Bitcoin, and cryptocurrencies in large, are battling an insurgent battle to reverse the incumbent system’s wealth extraction dynamic. But after observing a shift in policy towards crypto, has JP Morgan become Bitcoin’s best friend?
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Lately, there had been a lot of buzz around a JPMorgan Chase investment note that purported to put bitcoin above real estate and other conventional asset classes as the “alternative asset of choice.”
Bitcoin was roughly 28% undervalued, according to a May 25 investor note, and the bank was eyeing an upside price of around $38,000 per coin, thereby arguing that bitcoin’s recent price drop was overblown in comparison to real estate, private equity, and private debt.
On the outside, this appeared to be a significant departure from the one major money center bank in the United States, whose CEO, Jamie Dimon, has adamantly refused to join the bitcoin craze.
Dimon’s aversion to bitcoin is second only to that of European Central Bank (ECB) President Christine Lagarde, who continues to promote the notion that bitcoin has no value since it is not backed by a central bank or government.
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This is also Dimon’s public stance on bitcoin. He has been quite open about all this: Bitcoin has no government support or backing, so it does not matter. Because JPMorgan is a stockholder in the New York Federal Reserve Bank, you can not fault him for “talking his book,” just like Lagarde or another well-known bitcoin detractor, Berkshire Hathaway’s Charlie Munger.
So, what about this investor note? The devil, as usual, is in the details.
The first thing to realize is that this is a “sell side” analyst’s note, which means that it is the opinion of JPMorgan experts on where investors should place their money in the present market. It has nothing to do with the company’s CEO’s viewpoint.
Anyone who believes JPMorgan Chase CEO Jamie Dimon is messing around in the bowels of his investment banking sell-side division grinding his personal axe against bitcoin does not comprehend how a corporation like JPMorgan Chase operates.
Even Dimon has admitted as much. In a May 2021 interview, he stated the following:
These Dimon statements contain a wealth of thoughts. He is the CEO of one of the world’s largest, most powerful, and influential banks, and he keeps his job by giving his clients what they want, even if he personally is not interested in the product and/or is focusing on things that are, tangentially, competitors.
His sell-side analysts are not hired to be his voice; instead, they are employed to see things objectively, offer an investment thesis to clients, and persuade them to turn over funds in order for the bank to earn a broker’s fee.
There is nothing more to it than that.
That being said, if that was the entire story, this article wouldn’t need to be written. It is more complicated than that. JPMorgan Chase, like the remainder of Wall Street, is in a bind. For the most part, the Federal Reserve has maintained interest rates near zero for the past 14 years.
Traditional bank revenue models also crumble at zero-bound interest rates. A bank’s fundamental business is expected to be net interest margin, or NIM. The discrepancy between what the bank pays you for your deposits and what it pays investors to lend them out at a higher rate is the NIM.
The bank charges X, you receive 30% to 50% of X, and the bank retains the remainder. The “rest” is NIM. In the era of coordinated central bank policy, NIM is a dead letter office on most major banks’ quarterly earnings reports.
Instead, banks have turned to increasingly arcane investment banking and trading strategies to generate money, while treating traditional depositor customers as an albatross they must deal with in order to keep regulators at bay.
As a result, bitcoin and other digital assets have merely become another source of money for banks to use in order to offer another structured product to high-value investors, which is where they generate the majority of their money.
Enter the sell-side, which is promoting bitcoin at critical times in the market. To be truthful, I am extremely reluctant not to presume that when that investor note was released, bitcoin was trying to cling desperately to technical support around $29,000 per coin, it was an indication to the market that JPMorgan had concluded it had racked up adequate bitcoin to stuff into some line item on its balance sheet.
With the transition in hashing power from China to the United States over the last couple of years, there is more attention than ever in discovering methods to sell cryptocurrency-related products to investors, while Wall Street looks for ways to pile up on pullbacks while ramping up the FUD whenever the price rallies.
Why do you believe Dimon is so opposed to bitcoin? It is not because it poses a threat to his company’s operations. He and Munger despise gold for the same rationale. Munger will not be able to persuade a government official to make a one-way trade for him to “invest” in, and Dimon will not be able to design a product around it to provide a regular income stream.
They have no business in that area. There is no point in selling you a fund that stores bitcoin in a cold wallet once or twice.
How are they going to make their “two and twenty income” streams on something that people simply want to buy and HODL till the end of the world? This is why, from the start, Dimon and others like him have only seen Ethereum and DeFi, dismissing bitcoin as having no “there there.”
Nothing could be further from the truth, of course. Bitcoin, like gold and other assets that reside outside of the financial system — what Credit Suisse’s Zoltan Pozsar recently referred to as “outside money” — are the very items that have the potential to restore global financial discipline.
However, this puts the fundamental character of the existing system in jeopardy, even though it is creaking along on its final legs, as Munger and Dimon know better than anybody.
Bitcoin, and cryptocurrencies in large, are battling an insurgent battle to reverse the incumbent system’s wealth extraction dynamic. Remember that Dimon and the rest of the New York Boys made their billions by taking rent (unearned wealth) from the globe via the Cantillon effect of proximity to the source of new money.
Dimon has no interest in allowing anything that threatens that any breathing room, but he and JPMorgan are caught in the middle of being significant actors attempting to stay afloat as the system’s stock of real money is depleted.
This is the simplest explanation for his company’s contradictory messages. The market is slowly but steadily choosing “outside” assets to protect wealth, whereas JPMorgan and the rest of the New York Boys profit by manipulating the costs of “inside” assets to maintain returns high enough to keep the outflow at bay.
In fact, we are now in a sprint toward an unknown future, one in which big forces are contending for market share while the old system crumbles and a new one, or numerous new ones, emerges.
Men like Dimon and Klaus Schwab of the World Economic Forum will fight tooth and nail to stay prominent in the future. This is why JPMorgan can and will suggest bitcoin to its family office and investment house clients while also investing billions in a payment layer that will eventually replace SWIFT.
In fact, I find the battle for Ripple (XRP) to be much more fascinating than whether or not Dimon and JPMorgan will be able to profit from bitcoin. Dimon’s product is backed by ConsenSys, Ripple is backed by Schwab and the World Economic Forum (WEF), and the US Securities and Exchange Commission (SEC) lawsuit was, in my opinion, a poison pill left behind by departing SEC Chair Jay Clayton for Gary Gensler while everyone works to slow down the real crypto-revolution, where none of these oligarchs and rent-seekers are required.
This is bitcoin’s true potential, and JPMorgan’s high-net-worth investment clientele are finally growing concerned about the financial future for the first time in decades. Schwab and the World Economic Forum have sketched out their vision for the future, which includes a completely monitored and cataloged life for all people who live entirely within a digital identity that determines your range of real-world behaviors.
Are you overweight? There will be no pizza. Politics gone wrong? There is no work. Have you ever dated a tranny? There is no healthcare. There is little necessity for banks like JPMorgan or your local credit union in that environment. That is the threat, as far as I know, that Dimon sees on the horizon. He was not in attendance at this year’s Davos. Other members of the New York Boys group, such as Blackrock’s Larry Fink and Bank of America’s Brian Moynihan, were not.
JPMorgan is not a bitcoin supporter, but Dimon is well aware of the genuine challenges to not only the current system, in which he plays a key role, but also to any and all potential escape routes requested by his most loyal clients.
This is why I see him gladly permitting bitcoin to thrive in order to weaken Schwab and the WEF whilst concurrently attempting to weaken it with his own favoured solutions in the longterm.
Personally, I believe he is going to fail, just as I believe Schwab is. For bitcoin aficionados, seeing how both of them look to flourish in the short run will be excruciating. However, they are both battling a wave that is long past due.
Commodity prices have never been this low in relation to stocks (such as the S&P 500) or debt assets in the history of capital markets. Bitcoin is unfairly undervalued since it was the first derivative of energy to procure commodities in the real world, where real wealth is created.
Dimon, Schwab, and their Fed and ECB lieutenants can retain the flow of their inflated dollars and euros high to maintain their supremacy, but they must limit supply to prevent inflation from undermining the political power from which their currencies draw their market share, as they admit.
Dimon and JPMorgan are currently caught in a Catch-22 situation. Bitcoin does not care if you are a friend or a foe. It will just continue to grow in value and establish a network strong enough to allow us to overlook their lofty plans for global dominance.