A recent note from JPMorgan Chase suggested the bank realizes that bitcoin isn’t going anywhere. But what do the rent-seekers really think?
There was a lot of fanfare made recently over an investment note from JPMorgan Chase which seemed to elevate bitcoin over real estate and other traditional asset classes as the “alternative asset of choice.”
A May 25 investor note made the argument that bitcoin was around 28% undervalued and that the bank was targeting an upside price of around $38,000 per coin, in effect making an argument for bitcoin’s recent price weakness being overdone relative to real estate, private equity and private debt.
On the surface this seemed to be a big change from the one major, money center U.S. bank whose CEO, Jamie Dimon, refuses categorically to jump on board the bitcoin bandwagon.
If anything, Dimon’s antipathy to bitcoin rivals only that of European Central Bank (ECB) President Christine Lagarde, who continues to peddle the idea that bitcoin has no value because, of course, it lacks the backing of a central bank and/or government.
This is Dimon’s public beef with bitcoin as well. He’s been very clear about this: Bitcoin doesn’t matter because it has no official support or backing. Since JPMorgan is one of the shareholders of the New York Federal Reserve Bank, you really can’t blame him for “talking his book,” just like Lagarde or another famous bitcoin hater, Charlie Munger of Berkshire Hathaway.
So, what about this investor’s note then? Well, as always, the devil is in the details.
The first thing to remember is that this is a so-called “sell side” analyst’s note, meaning it is the opinion of analysts within JPMorgan of where investors should put their money preferentially under current market conditions. It has nothing to do with the opinion of the CEO of the company.
Anyone who thinks Dimon would be mucking around in the depths of his investment banking sell-side division to grind his personal ax against bitcoin simply doesn’t understand how a company like JPMorgan Chase works.
Even Dimon himself has said as much. In an interview in May 2021, he said the following:
“I’m not a bitcoin supporter,” Dimon said during The Wall Street Journal CEO Council summit on Tuesday. “I don’t care about bitcoin. I have no interest in it.”
“On the other hand, clients are interested, and I don’t tell clients what to do,” he said.
“Blockchain is real. We use it,” according to Dimon. “But people have to remember that a currency is supported by the taxing authority of a country, the rule of law, a central bank.”
There are a lot of ideas in these quotes from Dimon. He’s the CEO of one of the largest, most powerful and influential banks in the world and he maintains that business by being smart enough to give his customers what they want, even if he himself is not interested in that product and/or is working on products which are, tangentially, its competition.
His sell-side analysts aren’t paid to be his mouthpiece, they are paid to see things clearly and present an investment thesis to clients and get them to sign over some funds to make the bank a broker’s fee.
It’s nothing more complicated than that.
That said, however, if that was all there was to this story, I wouldn’t be writing this article. There is more to it than that. JPMorgan, along with the rest of Wall Street, is in a real pickle. For the past 14 years, for the most part, the Federal Reserve has kept interest rates near the zero-bound.
At zero-bound interest rates traditional bank revenue models collapse to zero as well. Net interest margin, or NIM, is supposed to be the core business of a bank. NIM is simply the difference between what the bank pays you for your deposits to loan them out to investors at a higher rate.
The bank charges X, you get 30% to 50% of X and the bank keeps the rest. That “rest” is NIM. And NIM is a dead letter office on the quarterly earnings report of most major banks in the era of coordinated central bank policy.
Instead, the banks have engaged in ever more esoteric investment banking and trading schemes to make money while looking on their traditional depositor customers as some albatross they have to deal with in order to keep the regulators at bay.
As such, then, bitcoin and other digital assets have become just another source of funds for banks to tap to sell another structured product to high-value investors, which is where they make the bulk of the money anymore.
Enter the sell-side talking up bitcoin at crucial moments in the market. Honestly, when that investor note was published and bitcoin was clinging desperately to technical support around $29,000 per coin, I’m hard pressed not to believe that was the signal to the market that JPMorgan itself had decided it had accumulated enough bitcoin to stuff into some line item on its balance sheet.
Bitcoin is big business now and with the shift in hashing power from China to the U.S. over the past couple of years, there is more interest than ever in finding ways to sell cryptocurrency-related products to investors, while Wall Street finds ways to accumulate on pullbacks while amping up the FUD whenever the price rallies.
Why do you think Dimon hates bitcoin? It’s not because it’s a challenge to his company’s business. It’s for the same reason that he and Munger hate gold. Munger can’t lobby some government official to create a one-way trade for him to “invest” in it and Dimon can’t structure a product around it to build a regularly-occurring income stream from it.
There is no business for them there. There is no profit selling you a fund once or twice that holds bitcoin in a cold wallet.
How can they come up with their “two and 20 income” streams on something people just want to buy and HODL for the end of times? This is why, from the very beginning, Dimon and people like him have only had eyes for Ethereum and DeFi, while decrying bitcoin as having no “there there.”
Of course, nothing could be further than the truth. Bitcoin, like gold and other assets that exist independently of the financial system — what Credit Suisse’s Zoltan Pozsar recently termed “outside money” — are the very things that have the capability of re-establishing financial discipline on the world.
But that puts at risk the very nature of the existing system, even though that system is creaking along on its last legs and both Munger and Dimon understand this better than anyone.
Bitcoin, and cryptocurrencies in general, are fighting an insurrectionist fight attempting to reverse the wealth extraction dynamic of the existing system. Remember, Dimon and the rest of the New York Boys have made their trillions on extracting rent (unearned wealth) from the world through the Cantillon effect of being close to the source of new money.
Dimon has no interest in giving any amount of breathing room to something that threatens that, but at the same time, he and JPMorgan are trapped by being major players trying to stay afloat as that system is being drained of its pool of real capital.
This is what best explains the mixed signals coming from his organization. The market is slowly, but surely, choosing “outside” assets to preserve wealth while JPMorgan and the rest of the New York Boys all make their money by manipulating the costs of “inside” assets to keep returns high enough to staunch the outflow.
In effect we are now in a race toward an uncertain future, one where there are major forces vying for market share during this breakdown of the old system and the establishment of a new one, or multiple new ones.
Men like Dimon and the World Economic Forum’s Klaus Schwab will fight tooth and claw to remain relevant players going forward. This is why JPMorgan on the one hand can and will recommend bitcoin to its family office and investment house clients, but on the other spend billions developing a payment layer to replace SWIFT.
In fact, I find the fight surrounding Ripple (XRP) to be far more interesting than whether or not Dimon and JPMorgan are finding ways to make money with bitcoin. Dimon is backing his product through ConsenSys, Schwab and the WEF are backing Ripple and, in my view, the U.S. Securities and Exchange Commission (SEC) lawsuit was a poison pill left behind by outgoing 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 needed anymore.
This is the real promise of bitcoin and JPMorgan’s high-net-worth investor clients are finally, for the first time in decades, truly becoming scared of where things are headed financially. Schwab and the WEF have laid out their plans for the future, a fully-tracked and cataloged life for all people living wholly within a digital identity that decides for you what your range of actions in the real world are allowed to be.
Too fat? No pizza. Wrong politics? No job. Haven’t dated a tranny? No healthcare. In that world there is precious little need for banks like JPMorgan or your local credit union. That is the threat that I know Dimon perceives is on the horizon. He wasn’t at this year’s Davos. But, other members of the New York Boys club were, like Larry Fink of Blackrock and Brian Moynihan of Bank of America, to name a couple.
JPMorgan is no friend to bitcoin, but Dimon is fully aware of the real threats to not only the current system, in which he’s a central player, but also to any and all potential escape routes desired by his best customers.
This is why I can see him happily allowing bitcoin to develop to undermine Schwab and the WEF while simultaneously working to undermine it in the long run with his own preferred solutions.
Personally, I think he’s doomed to fail as I think Schwab is as well. The way in which both of them appear to succeed in the short-term will be frustrating as hell for bitcoin enthusiasts to watch. But they are both fighting against a tide whose time is long overdue.
Never in the history of capital markets have commodity prices been this cheap relative to that of equities (like the S&P 500) or debt assets. Bitcoin, being the first derivative of energy to procure commodities in the real world where real wealth is built, is then, by extension, criminally undervalued as well.
Dimon, Schwab and their lieutenants at the Fed and the ECB can keep the flow of their overvalued dollars and euros high to reinforce their dominance but they also need to restrict their supply to keep inflation from eroding the political power from which their currencies, by their own admission, derive their market share.
That is the catch-22 that Dimon and JPMorgan find themselves in today. Friend or foe, bitcoin doesn’t care. It will just keep accreting value and building a network strong enough to allow us to ignore their grand dreams of global control.