The long-time CEO of JP Morgan Chase, Jamie Dimon, had some sharp words for Bitcoin investors in an interview yesterday. According to Fairfax media, Dimon was quoted variously as saying:
““The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.””
He also described the cryptocurrency as a fraud, stating:
“Honestly, I am just shocked that anyone can’t see it for what it is.”
Possibility of fraud aside, Bitcoin is one of the biggest risks I’ve seen for investors in a long time, mainly because it encourages people to ‘invest’ without thought. The same people who wouldn’t invest $500 in Medibank Private Ltd (ASX: MPL) are putting $5,000 in bitcoin or being encouraged to save for a house via bitcoin (true story).
As we wrote here, for the money that’s been poured into bitcoin, investors could instead own the entirety of Wesfarmers Ltd (ASX: WES) and Suncorp Group Ltd (ASX: SUN) and still have cash left over. I’m not sure if I would go so far as to call Bitcoin an outright fraud, but the hype has got me extremely wary. The chances of an investor making smart decisions in overhyped cryptocurrencies are low, in my opinion, and the chances of over-committing are high.
Put together, hype and over-commitment usually lead to disastrous financial decisions.
If you’re going to own Bitcoin, keep it to a tiny part of your investable assets – less than 1% – and be aware that it’s not governed by securities laws so you have minimal legal protection if you get taken advantage of by unscrupulous dealers.