Tales from the crypto: Is bitcoin a fraud?

Golden Bitcoin Coin and mound of gold
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Francois Badenhorst
Business editor
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If there was any doubt left that Jamie Dimon wasn’t a fan of bitcoin, JP Morgan’s CEO laid them to rest when he spoke at a conference recently.

The cryptocurrency, Dimon said, “doesn’t exist” and was only fit for use by criminals and people marooned in failed economies. There was even something for fans of 17th-century financial bubble references, with Dimon calling bitcoin “worse than tulip bulbs”.

This isn’t Dimon’s first attack on bitcoin. Actually, he has campaigned tirelessly against bitcoin’s perceived volatility and fraudulent nature. Dimon’s criticisms practically merit an entire genre of their own by now.

But that’s not to say he’s some sort of wild-eyed outlier. Indeed, his point of view resonates with some AccountingWEB members. Commenting on Sooraj Shah’s recent bitcoin article, member ShayaG admitted that while “bitcoin has delivered good returns to investors”, it is “too slow to confirm transactions to merit serious consideration for a day to day currency”.

“Its USP seems only to appeal to the criminally minded,” ShayaG wrote, echoing Dimon’s aspersions on bitcoin’s legitimacy.

It would seem, too, the effect of Dimon’s latest tirade proved his point about the bitcoin’s volatility. By yesterday, bitcoin’s value had dipped 10% since his speech, falling below $3,800 per bitcoin.

But according to Baroness Michelle Mone, founder of the wildly successful lingerie brand Ultimo and now a bitcoin investor, the timing of the drop is purely coincidental. In fact, she told AccountingWEB, Dimon’s past criticisms actually precipitated a rise in bitcoin’s value.

The drop, Baroness Mone explained, actually relates to the Chinese government closing down illegal bitcoin exchanges. She added: “On a lighter note, every time Mr Dimon makes a comment it seems to be a great time to purchase bitcoin. I believe that people shouldn't throw stones in glass houses, if I recall JP Morgan suffered $20bn in fines not so long ago.”

As far as the accusations of bitcoin’s inherent criminality, she was unconvinced. “The blockchain protects users from fraud because the decentralised network confirms each transaction on the blockchain to be valid and true. This also means that no chargebacks can occur within bitcoin. Once your transaction has taken place and is confirmed, it is placed on the public ledger and can never be undone.”

HMRC guidance

According to Mone and many other crypto partisans, bitcoin is the future of currency. But if it is indeed the future, HMRC will need to catch up quickly. Up until now, the tax authority has remained very circumspect on its interpretations of cryptocurrencies.

The latest guidance on offer was published in 2014. That’s aeons ago in the fast-moving world of cryptocurrencies. HMRC’s guidance does seem a tad inadequate for a topic involving billions of pounds, with the advice saying whether any profit or gain is chargeable or any loss is allowable will be looked at on “a case-by-case basis”, and the “relevant legislation and case law will be applied to determine the correct tax treatment”.

AccountingWEB user Jonathan Smith from Aiteo Consulting notes that: “The preliminary view is that [bitcoin] mining isn’t an economic activity for VAT purposes, based upon a draft EU view. However, they do view the holding of cryptocurrency as any other currency, so it could be treated as a gain when it is translated into (say) GBP.”

Of course, if you ask Jamie Dimon he’d tell you that new legislation isn’t needed since the crypto bubble is fixing to burst. “The currency isn’t going to work,” he said flatly. He might, however, have to tell his own daughter the bad news: “My daughter bought bitcoin, it went up and now she thinks she's a genius.”

About Francois Badenhorst

About Francois Badenhorst

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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15th Sep 2017 09:36

The whole issue with Bitcoin is very simple, virtually all the holding are about speculation.

There is very little use of it as an actual currency.

its much like holding gold, in theory its a currency, but its quite hard to actually spend it and most of the time its held purely for its asset value, but has no intrinsic return other than future asset value.

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to ireallyshouldknowthisbut
15th Sep 2017 10:13

I would be inclined to agree, but would caveat that with "at the moment".

Interest with cryto-currency is more than just Bitcoin, and perhaps the implications of the technology and approach will have more of an immediate impact than actual everyday use.

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to rsergeant
15th Sep 2017 11:50

Yeah, agree. 'For now'. Although, it is starting to change. Some of it driven by the economically paranoid times we live in.

And you're also right, it's not just bitcoin. Dimon has a bee in his bonnet about bitcoin specifically, but he comes off sounding like a crotchety uncle at a BBQ. It's not even just the currencies either, it's the platforms that underpin them.

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to ireallyshouldknowthisbut
15th Sep 2017 10:46

It's the total opposite of gold. Also, the sterling, dollars etc. in your bank account are just electrons and the physical paper/plastic currency is just that, paper/plastic (the coins have some intrinsic value at least). Currencies are only worth something coz Governments (or gangsters in the case of Bitcoin - assuming there’s a difference) say they’re worth something i.e. they demand taxes that are payable in that paper/electrons and allow debts to be legally settled by those same (physically worthless) means. Most people do not understand that very simple & obvious con trick about money (which explains why it works so well, as well as with Bitcoin).

Unlike all that smoke & mirrors stuff gold (like any tangible rare desirable asset) is relatively stable long term and will never go to zero etc. as has been proved over many 1000s of years unlike all fiat currencies that eventually go to (or near) zero.

The tupil analogyy is apt on that basis.

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to ireallyshouldknowthisbut
15th Sep 2017 13:48

Agree re bitcoin not re gold.

Gold CAN be rxchanged for real ( fiat) money at most jewellers in Hatton Garden very few questions asked.

Can physical bitcoin?

Admittedly you cannot go into a shop to buy a KitKat with a kruggerand or an ingot.

But indeed these several denominations of gold exist. With bitcoin there is as far as I know just the one coin worth one bitcoin worth approx USD 3000 ( god knows what physical offerings there are in any of the other 130 odd cryptocurrencies e g Ethereum Ripple Litecoin Monero etc ) .

Indeed has anybody ever handled this one bitcoin coin ? Is it made of metal or papier mache'?

Again it is said the blockchain is irrevocable. So why can none of the Mt Gox disappeared funds be traced?

Me? I remain a Doubting Thomas or in my case Tomasina.

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to itp3asso
15th Sep 2017 14:59

"Admittedly you cannot go into a shop to buy a KitKat with a kruggerand or an ingot."

Oh ipt3asso, if you want to call by my shop and swap a Krugerand for a KitKat you will be welcome, any time.

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to unclejoe
18th Sep 2017 10:28

Grammatical ambiguity well spotted but rather pedantic.

So .. with Bitcoin at roughly $3000 you would be prepared to give me roughly £ 2000 at urrent r/e in fiat change plus my Kit Kat would you?

I warn in advance I would only accept it in no other coin than £20 notes!

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By sandor
to itp3asso
19th Sep 2017 11:34

Pedantic is my middle name!
$3000 of BTC for £2000 and a KitKat – There would be a disorderly queue of kitkat vendors just based on the great $ to £ exchange rate I should think!

Still not quite how Bitcoin works. It is a digital currency, pre-programmed to 64 decimal places.

You pay for your kitkat with a fraction of a digital coin (think digital version of pieces of Eight)

No need for change.

Personally though, if given the option I would willingly take your whole bitcoin just to be able to unload all that FIAT worthless paper in any denomination you would be happy to accept.

Today FIAT paper is worth almost a third less than it was in 2007 with inflation (32.92% less) - although that figure is always skewed to hide the real inflation rates from consumers.

House prices have increased around 60% and gold by about the same in the last 10 years. They are the true benchmarks of inflation.

Your FIAT £1.60 from 2007 now only buys you a £1's worth of goods. This is a feature built in to FIAT money which is proven historically and is an inevitability of it's future.

Is crypto currency in a bubble? Yes it almost certainly is, but Bitcoin would have to fall all the way to below 7 cents a coin just to get back to where it started and then a few cents more to equal the performance of FIAT money.

The FIAT Monetary economy ensures that by the time we reach the end of our working lives all the money we squirreled away since our first day of work is only worth a fraction of what it was at the time we saved it.

The lowly state pension ensures that as much of what we have saved gets spent before we are pushing up daisies, and is the reason that as a nation we lock up more old age pensioners in our prisons than any other country on the planet.

Perish the thought that we may want to leave too much to our kids!

Just one example of a shameful state of affairs brought about by an intentionally flawed fraudulent monetary system designed to be too complex for the masses to understand.

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By ShayaG
to ireallyshouldknowthisbut
15th Sep 2017 15:42

There's something like US$55bn BTC at current marketcap in circulation, and, with around US$750M being transacted every day. That's roughly 1.5% of the market cap being traded. It doesn't seem illiquid to me.

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15th Sep 2017 10:56

At last! Someone has had the guts to say that the Emperor has no clothes on !!
Check out on Kaspersky's website how new Bitcoins are created.

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15th Sep 2017 11:12

Bitcoin has been around for over eight years now and for over eight years people have been announcing that actually it's all a lot of nonsense and can't possibly work.

From wikipedia:
Forbes magazine declared bitcoin "dead" in June 2011,[79] followed by Gizmodo Australia in August 2011.[80] Wired magazine wrote it had "expired" in December 2012.[81] Ouishare Magazine declared, "game over, bitcoin" in May 2013,[82] and New York Magazine stated bitcoin was "on its path to grave" in June 2013.[83] Reuters published an "obituary" for bitcoin in January 2014.[84] Street Insider declared bitcoin "dead" in February 2014,[85] followed by The Weekly Standard in March 2014,[86] Salon in March 2014,[87] Vice News in March 2014,[88] and Financial Times in September 2014.[89] In January 2015, USA Today stated bitcoin was "headed to the ash heap",[90] and The Telegraph declared "the end of bitcoin experiment".[91] In January 2016, former bitcoin developer Mike Hearn called bitcoin a "failed project".[92]

I suppose they can add one more to that list now, presumably there's no particular reason he ought to be any more right than any of the others who wrongly announced the failure of bitcoin.

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to Duggimon
15th Sep 2017 11:59

But people no doubt said the same thing about tulips along the way up didn't they and so that does not prove a thing therefore (other than it is almost certainly a bubble about to pop).

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By hiu612
15th Sep 2017 11:18

So the head of a massive central bank which is used to making money by controlling financial activity doesn't like a platform which would entirely circumvent him.

Shocker.

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By Ammie
15th Sep 2017 11:18

I would agree that Bitcoin may be limited in its use at present, but the anonymity its users can assume and the prospect, (in times of fall cash use), of it, or its like, being developed to fuel the black economy, will certainly test the powers that be.
Just when governments thought they are gaining more control by controlling cash!!

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By ShayaG
to Ammie
15th Sep 2017 15:44

I agree. BTC wallet providers urgently need regulation, starting with KYC.

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15th Sep 2017 11:27

People are naturally entitled to form their own views and Jamie Dimon is certainly a very high profile business leader and influencer. It should be pointed out there are certainly many better recognised authorities and influencers in the Cryptocurrency/blockchain space to be listened to on such matters.

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By SXGuy
15th Sep 2017 11:28

We had a client who traded bitcoin and would have declared any profit when it was converted to GBP. If he had made any. He like many lost a lot of bitcoin because the amount of fake exchanges are rife. He made nothing and gave it up.

It would be interesting to know what expenses you can offset against bitcoin mining though as essentially your using electric to power the cpu which could generate bitcoin. Can you claim the expense even if you don't get any bitcoins? Is this then a loss? Can this loss carry forward till such time as the asset is converted to currency?

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to SXGuy
15th Sep 2017 13:54

All very pertinent points on which HMRC ( or any tax authority on the globe) currently has no iota of a clue as to answers.

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By sandor
15th Sep 2017 17:37

Actually news headlines have announced that 'Bitcoin is dead' 104 times since it's inception. A small group of powerful men are clearly intent on discouraging us from using it.

It's time for change. The world has moved on since the Central reserve banking system cheated it's way into existence.

The likes of the Morgans, Rothchilds et al may wish it would remain so. But when a family like the Morgans have a history of starting rumours for their own gains as well as using their position to finance both sides in the great wars under a system where the loosing side picks up the tab for both sides at interest, we should take what they say very much with a pinch of salt.

Indeed as President Woodrow Wilson put it afer signing the Federal Reserve act 'never has so much power been in the hands of so few'. After more than a century it is high time that control was brought to an end. Cryptocurrency has the power and ability to relinquish that power from the few families that have used the central banking reserve system to control governments and countries through financial power.

For the hand that lends is always above the hand that borrows. The primary reason for the existence of the privately owned central banks is to lend to government at interest. Just as they did in 2007 by way of quantitave easing to bail out the very banks who created the crash in the first place - the lending though was to the government at interest. Our taxes are still paying and will be paying it for many years to come.

Cryptocurrencies solve some very real issues with the monetary system. The payments are instant, cross border and without the need for any of the intermediaries - no bank, Visa or MC international, SWIFT payment system or other intermediary in the banking industry is required to control the path of your money when you make a crypto payment, and so there is no intermediary to take a cut out of your money either. The worlds billions of unbanked individuals no longer need have a care that they can not open a bank account.

Real money is created out of thin air through the banks lending. The system is inherantly and intentionally flawed. It creates inflation through constant dilution of the value of money. Together with inflation and interest rates the bankers are able to ensure that the masses are never able to aquire more than is absolutely necessary. The only way to balance the books is to periodically have a recession to clear out the suckers and draw some of the created money back out of circulation.

As for comments about Bitcoin only being used by criminals - this is again more rumour than reality. Payment in bitcoin and several other cryto currencies can now be made accross Japan for retail and commercial payments. Where Japan starts with a new technology, the rest of the world generally follows soon after.

Nearer to home Ing bank in the Netherlands has developed a trading platform for international oil payments based entirely on Etherium crypto currency. They have opened this system up to other banks to use. It is fast, secure and the multilayered contracts that can be attached to Ether means that it is more secure and more resilient to error than the old human based system of checking reams of paper documents such as bills of lading.

This in itself has to be a big worry for the banks and the US in particular. Remember Saddam Hussain was hunted down like a stray dog because of non existent WMD's. Or was it because he announced he was going to switch the trade in Iraqi oil from US$ to Euro.

I think it is obvious we have something in real currency that does not work for the benefit people or the ecomony at all.

Cryptocurrency has the potential to be our saviour.

Certainly it can't land us in any worse situation than we are in with FIAT money. In it's present form I can see no way any small group of individuals could hope to control the entire supply of digital currency as is the case with real money.

As for those who are convinced that digital currency is only used by criminals, you have it the wrong way about - it is the real money that is issued by and controlled by criminals. They are the ones who do not want you to have cash for the same reasons they do not want you to have crypto currency. They don't get their cut on every transaction.

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By ShayaG
to sandor
15th Sep 2017 15:46

I'm a little unnerved by the reference to Rothschilds. Rothschild is a small merchant bank, but has a long history as the target of antisemic canards.

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By sandor
to ShayaG
15th Sep 2017 16:43

ShayaG: Not sure why you are unnerved, the only religion I mentioned was banking, and at that not the 'small merchant bank' you are referring to but the family.

With a combined net worth estimated at between $2 & $500 trillion they are in the top 10 richest and most secretive families in the world yet never appear on the Forbes rich list as the money and power is well hidden.

Did you ever wonder who owns the Bank of England?

To quote Nathan Rothschild

“I care not what puppet is placed on the throne of England to rule the Empire. The man who controls Britain’s money supply controls the British Empire and I control the British money supply.”

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By sandor
15th Sep 2017 18:05

itp3asso I can clear up a couple of the points you raised;

'With bitcoin there is as far as I know just the one coin worth one bitcoin worth approx USD 3000'

Not quite, Bitcoin supports up to 64 decimal places and you can buy a green tea Kit Kat in Japan with about .00026 BTC

'Indeed has anybody ever handled this one bitcoin coin ? '

No, but have you ever really considered what the paper money in your pocket actually is? It is simply an IOU - it is not currency. It is a promise to pay the bearer on demand. Originally £1 would have been paid to you on demand in the form of 1 pound in weight of silver. Today the value of the IOU is in reality nothing.

The pound of silver has of course long gone. You can now only exchange it for a digital £1 or real goods. Bitcoin does that without the paper IOU and more securely than having the bits of paper in your real wallet for muggers, pick pockets, bankers of governments trying to sieze it from you.

How do you consider cash works any differently to Crypto currency except that when you deposit it in the bank the bank charges you for depositing cash, and charges you again for withdrawing cash. When did you last carry your salary home in a brown envelope of cash? Let alone run round paying your mortgage and all your bills from it. I think we all stopped doing that some time before we stopped doing accounts on a paper ledger.

'Again it is said the blockchain is irrevocable. So why can none of the Mt Gox disappeared funds be traced?'

Because it is irrevocable, much as if payment is made in cash and the recipient had dissapeared with said cash. Or if you deposit your cash in a bank and the bank fails. True you get your money back up to the bailout limit with a bank - but we all end up paying for the bank bailouts anyway.

I think it's a good idea for everyone to buy themselves £50 or £100 worth of bitcoin and actually experiment with the process of buying and using it. It is likely to be a life skill we all need in the very near future.

As for gold, it pays to remember this is also something which is largely being traded.

If all the gold mined throughout the entirety of human history were stacked up together it would cover an area roughly the size of a tennis court and would be about 30ft in height. The volumes traded far and away exceed the real world volume of gold reserves many many times over - not least because most of the worlds gold reserves are hanging round peoples necks having quietly been sold off over the years.

Speculation in Gold, Crypto currency or pork bellies drives the price up and causes volatility in all markets. I don't see it as an issue peculiar to Crypto currency.

Governements the world over have tried to ban and or control crypto currencies like Bitcoin. They have all failed. It scares them because they can not control it, it scares them because they can not sieze it as they can with other assets or money, when their subjects do not pay their taxes. The governments can not demand their citizens forfiet it like they could, and historically have done with money or gold or real property.

In short, with crypto currency when the governement needs a bailout there is no one to turn to. No central bank, no citizens assets, no pile of gold.

This hopefully will result in reason, logic and most importantly accountability being the controlling factors of future governments.

We will look back in 20 years and see that cryptocurrencies like Bitcoin were one of the most defining moments in human history. Like the bicycle, the internal combustion engine and the atom bomb, only more so. It is going to return control of money to the masses and remove it from the hands of the few.

The only thing in human history that will have a more profound effect on our lives will be the confirmation of life that did not originate on our planet. Just a decade ago most still thought that improbable. Today the shift is that it is very likely prolific throughout the universe.

Times change.

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18th Sep 2017 09:33

I agree that Bitcoin is a speculation and not real money as it's not backed by hard assets.
Jamie Dimon, however, is not the man to call anything a fraud when his own bank have paid out BILLIONS in fines and penalties for illegal activities in only the last few years.

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