JPMorgan's Jamie Dimon Says Crypto Assets Are Like 'Pet Rocks.' Here's Why He's Wrong

Don't discount the whole industry just because some of it's broken.

JPMorgan CEO Jamie Dimon doubled down on a couple of his financial beliefs in a CNBC interview this week. First, he still thinks a recession is on its way. Second, he still isn't a fan of crypto. "Crypto tokens are like pet rocks, and people are hyping this stuff up," he said.

The cryptocurrency industry is certainly struggling. But Dimon and other crypto skeptics like Warren Buffett warned that digital currencies like Bitcoin (BTC) had no intrinsic value even before prices collapsed. Now, with the prices of top coins down over 80% on all-time highs, many crypto investors could be forgiven for wondering if the skeptics were right all along.

Jamie Dimon's objections to crypto

Dimon has said before that Bitcoin is "worthless" and called it "fool's gold." He refuses to use the word currency when it comes to cryptocurrencies, preferring to call them "crypto-tokens." His reasoning? Currencies have laws and central banks behind them, and crypto does not. Indeed, part of the attraction of Bitcoin is that it is decentralized and doesn't need the involvement of central bodies.

In this week's interview he also raised concerns about the darker side of the crypto industry, questioning what percentage of crypto's trillion-dollar market was made up of illicit activities. "There's $20 to $30 billion a year of ransomware that we know about," he said. He also mentioned money laundering, anti-terrorism financing, tax avoidance, and sex trafficking.

Dimon thinks regulators should focus more on the crypto industry. "I think, you know, the regulators who beat up on banks should maybe focus a little more on crypto," he said. Calls for increased crypto regulation have gathered momentum this year, but there's still a way to go. In September, the White House released its first framework on what shape digital asset controls might take.

Why Jamie Dimon is wrong about crypto

There are over 20,000 cryptocurrencies on the market, and Dimon's assessment of the industry is right in some respects. First, it is misleading to call them currencies as that's not what a lot of them do. Second, some cryptos are about as useful as a chocolate teapot. But not all of them. A number of cryptocurrencies do have real-world utility and could perform well in the long term.

Here are some other examples of cryptocurrencies with real-world utility:

• Bitcoin (BTC): A January report from Ark Invest highlights several use cases for Bitcoin, including the global remittance market, an emerging market currency, and a form of digital gold.
• Ethereum (ETH): Ethereum is the biggest programmable crypto, meaning that decentralized applications can be built on its network. From finance to gaming, Ethereum is the framework for a host of blockchain applications.
• Cardano (ADA): Cardano has a mission to use blockchain to bring about positive global change. One example of how it does this is a project to store the academic records of five million Ethiopian students on a tamper-proof blockchain.
• Livepeer (LPT): Livepeer significantly reduces the cost of video content production by pulling together a network of individual computer resources. It is one of several crypto projects that puts people's unused computer processing power to work and pays them crypto rewards.

There's also an ideology behind crypto that often gets lost in the hype around volatile prices. If you think about the way you surf the internet and use social media today, it is often the tech giants who gain the most from your attention and energy. For example, they can sell data about your habits and profit from the ads you view and the content you create.

Decentralization could change that dynamic. One small example would be the Brave browser, which pays users in crypto for surfing and viewing ads. A blockchain-based internet could mean you, not a tech company, control your data and any content you create. But, as with most things crypto, it is early days and it's hard to predict how it will unfold.

In fairness to Dimon, he doesn't dismiss the usefulness of blockchain technology. It is entirely possible to use the blockchain that underpins Bitcoin without using cryptocurrency. Several companies, including JPMorgan, are already looking at ways to do just that.

Crypto still has potential, in spite of risks

The FTX saga highlights some serious issues in terms of trust, transparency, and control in the crypto world. This applies to crypto exchanges as well as the wider industry. Not only can the prices of individual cryptos fall to zero, if your assets are on a crypto platform that fails, you may not be able to get them back.

These are high-risk investments in a high-risk environment. The attraction is that crypto assets could produce outsized returns if they succeed. But investors could also lose everything. This is why it's important to only invest money you can afford to lose and ensure high-risk assets only make up a small portion of your portfolio.

None of us have a crystal ball, and there's a lot we don't know about how crypto will evolve. For example, we don't know what impact increased regulation will have. We don't know how far the FTX contagion will spread or how many other projects will fail. We don't know how crypto can rebuild trust, nor how shaky the foundations really are. Finally, we don't know whether cryptos will become more user friendly and find ways to reach a new set of consumers.

But neither those unknowns nor the presence of bad actors mean the whole industry is worthless or that all cryptos are like pet rocks. There are still a number of crypto seeds that could bear fruit in the right circumstances. As a crypto investor, the challenge is knowing how many seeds to plant and deciding whether there might be safer harvests elsewhere.