The crypto kids are on to something – and they shouldn’t be listening to billionaire bankers like Jamie Dimon
Over the past few months, a chorus of some of the world’s most powerful businessmen have been determined to scare the financial system into thinking crypto is dangerous. Jamie Dimon said: “Bitcoin itself is a hyped scam.” Jane Fraser opined: “If grandma is investing in crypto, we should have protections in place.” And Charlie Munger described it as “a gambling contract with an almost 100% advantage to the house.”
The most vocal critics of the new asset class all seem to have one thing in common – they are some of the biggest winners of the legacy financial system, and arguably have the most to lose if cryptocurrency becomes the norm.
If a record-holding athlete campaigns for a rule change that happens to make it harder for others to break that record – then we will question their motives. It’s time to hold the wealthy figures who oppose crypto to the same standard. At the same time, there are a number of myths that they keep trying to promote, which do not hold up with the evidence.
Let’s start with Charlie Munger, who calls on the US to follow China’s lead and ban crypto. Munger is a billionaire whose wealth comes almost entirely from his shares in Berkshire Hathaway, itself a sophisticated investment vehicle. He and his business partner Warren Buffett (who said Bitcoin is “probably rat poison squared”) are the archetypes of wealth created by America’s free and open capital markets.
Munger, Dimon and Fraser are beneficiaries of a system that relies on too-big-to-fail intermediaries such as JP Morgan, run by Dimon, or Bank of America, a large Berkshire firm. The fact that these intermediaries require government intervention once a decade is not considered controversial. Now Munger wants America to suppress an entire asset class.
Cryptocurrencies are different. Users do not need intermediaries to shop. In over a decade of operation, the Bitcoin system has never been down or needed a bailout. Unlike some of traditional finance’s biggest names, it has never made a mistake or defrauded millions of its own customers.
In his column, Munger likens crypto to a sure-to-lose bet, but Bitcoin has largely appreciated over the years, similar to other blue-chip coins. Long-term owners tolerate volatility because it is usually to the upside. Other asset classes have also done well during crypto’s lifetime, but investments such as real estate, art, and startup stocks are not available to the general public. Even Berkshire Hathaway stock can only be owned by a select few given its high price.
Anyone can own small amounts of crypto – and hundreds of millions of people around the world do. Adoption is highest in places like Vietnam, Pakistan and Nigeria, countries where the banking system is unreliable and the local currency is inflationary. If your domestic currency collapses, all a cryptocurrency needs to do is bounce around and you still benefit. Despite the general decline in crypto prices over the past year, Bitcoin has continued to strengthen against the Argentine peso. Cryptocurrencies use technology to create property rights where none exist.
To be fair, Omaha—where Berkshire Hathaway is headquartered—doesn’t have these problems. But even in the US, crypto per capita adoption is highest among minorities. Perhaps these communities still remember the discriminatory banking practices of the past or the lack of services in the present. According to official estimates, 40% of black households in America remain unbanked or underbanked. It’s real rat poison – but don’t expect any comments from captains of industry proposing a solution. It’s Dogecoin that keeps them up at night.
Yes, there are scams and collapses in the crypto ecosystem, and it needs sensible regulation. But there are scams and collapses in all industries, especially early on. Tellingly, no sane person ever suggests banning them. Imagine if we had banned tech stocks after the dot-com bubble, or banking stocks after the 2008 crisis.
Munger says that “a cryptocurrency is not a currency, not a commodity, and not a value” – as if this proclamation proves anything. If semantics were the basis of value, English majors would be running Wall Street. Google was not a phone company, not a postal service, and not a TV station when it first launched. Gmail and YouTube still took over.
Things change, industries are disrupted and new asset classes emerge. The sausage layer of building a new financial system is not pretty – but it is a necessary condition for building something better. Billionaire bankers calling for the end of crypto should not be taken seriously. If anything, their exaggerated resistance proves the kids are on to something.
Omid Malekan is an assistant professor at Columbia Business School and author of Re-Architecting Trust, the Curse of History and the crypto cure for money, markets and platforms.
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