JPMorgan quant guru says cryptocurrencies similar to pyramid schemes



JPMorgan
quant guru Marko Kolanovic says cryptocurrencies have “some
parallels to fraudulent pyramid schemes.”


Reuters/Fabrizio
Bensch



JPMorgan’s global head of quantitative strategy has joined his
boss, CEO Jamie Dimon, in the growing legion of
anti-cryptocurrency crusaders.

In a client note on Wednesday, Marko Kolanovic said that
cryptocurrencies as a whole have “some parallels to fraudulent
pyramid schemes.” The comments come a day after Dimon called
bitcoin a “fraud” that was “worse
than tulip bulbs.”
 He even went as far as to say
he’d fire any trader that transacted it for being
stupid.

Kolanovic highlighted bitcoin in his comparison,
noting that while the initial mining of coins requires minimal
effort for a disproportionally large share of profits, there are
diminishing returns in the future, until the gig is up. This same
dynamic is at the core of a pyramid scheme, he said.

But Kolanovic’s analogy doesn’t end there. He also said
that one way to circumvent this potential dead end is to simply
create a new cryptocurrency altogether. This would be akin to the
new blockchain-based instruments popping up all the time — with
red-hot ethereum being the most
successful example.

“While we don’t know whether the price of cryptocurrencies
will go up or down in the near-term, the history of currencies,
governments and financial fraud tells us that the future for
cryptocurrencies will likely not be bright,” Kolanovic
wrote.

For an idea of just how popular bitcoin is, look no further
than its more than 300% surge this year — although it’s
experienced weakness in recent sessions, declining in earnest
following Dimon’s comments
. The cryptocurrency has also been
pressured by negative headlines out of the United Kingdom and
China. 

On Tuesday, the UK’s financial watchdog, the Financial Conduct
Authority, warned
investors about the risk associated with initial coin
offerings
, the cryptocurrency-based fundraising method.

Earlier this month,
China banned ICOs
, and more recently, rumors that it might
ban cryptocurrency trading altogether have escalated — a Caixin
report out Friday suggested that China would
shut down its domestic exchanges
.

On a broader basis, cryptocurrencies aren’t the only area of the
global marketplace that gives Kolanovic pause. He’s also publicly
lamented the continued shorting of volatility through the use of
exchange-traded products linked to the CBOE Volatility Index —or VIX.

In a report from late July, Kolanovic said that
record-low volatility
should “give pause to equity
managers.” He even compared the strategies that are suppressing
price swings to the conditions leading up to the 1987 stock
market crash.

So while JPMorgan isn’t going as far as to call the end of
these increasingly tenuous market trends, they’re stressing
caution as investors chart new territory. Everything seems fine
when everyone is making money. But when the first signs of unease
hit, just how exposed do you want to be? That’s the questions
investors should be asking themselves.


Screen Shot 2017 09 13 at 3.36.10 PM
Bitcoin
has surged more than 300% this year, but has faltered since
JPMorgan CEO Jamie Dimon called it a fraud.


Markets
Insider



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