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Note on JPMorgan bitcoin trades and Jamie Dimon

September 16, 2017

Just a note on the JPMorgan bitcoin trades.  It’s very ironic, yes, but there’s a lot of incorrect speculation on what is going on.

First of all, banks are not allowed to do proprietary trading.  So JPMorgan cannot make money off the swings of bitcoin (or in the price swings of everything else).  The regulators put in this rule after the 2008 financial crisis, and it’s a pretty strict rule.

Where JPMorgan does make it’s money is to be a prime broker.  You call up your broker and you want to buy X shares of Apple stock.  It turns out that the broker is legally obligated both by their contract to you, exchange rules, and often regulatory requirements to execute that order.  So what happened was that after the price of bitcoin went down, one of JPM’s clients (or many of JPM’s clients) sent an order to buy a tracking index for bitcoin.  At that point JPM is legally obligated to execute the order, not withstanding what the CEO thinks about bitcoin.

One thing that you have to understand about JPMorgan or any big company is that it is a huge bureaucracy, and it’s not as if the CEO can just order people to do something.  There were only two times while I was there that I saw Dimon.  Once when he gave a speech at a “thanks for your hard work” Friday party the week Lehman Brothers collapsed, and the other time in which he visited Hong Kong.  He apparently walked through the trading floor, but I was too busy working with my computer so I missed even seeing him.

The big problem with Dimon’s comments is that it’s terrible for the future of the company….  It’s impossible to know exactly who traded the bitcoin, but they almost certainly are a big hedge fund client or really rich person that has a choice of brokers, and if the CEO of one of the companies that you are putting trades through thinks that you are a drug pusher, you might be thinking about using another broker.   If it happens to be someone that is deep into crypto, then right now there are likely to be some uncomfortable conversations with the fund’s relationship manager, as the relationship manager is trying to explain away Dimon’s comments.

And it’s terrible for morale.  Trying to be an innovator in a big company is an incredibly difficult and frustrating job.  It’s like teaching an elephant to dance.  You have to deal with mind numbing amounts of politics and spend frightening amount of time dealing with legacy systems and bureaucratic inertia.  Yes, you get paid well, and you have a steady paycheck, but unlike a small company where you must innovate or die, you have the option of just punching the time clock, doing what you are told, and collecting the paycheck at the end of the week.

As with innovation elsewhere, ultimately you do what you do because you care about the company and you want to do a good job to generate shareholder value.  The CEO is like the Queen of England.  They are so far away that they have no direct influence on what you are doing.  What the CEO can do is to provide tone and a vision.  You are fighting the day to day battles to get something new done, and you want to give up, but then the CEO talks about how important innovation is, and you keep fighting.

But one day you come to work and find out that senior management really isn’t interested in what you are doing.  It can be a very painful and traumatic experience, so at that point you leave.  But as the people that are interested in innovation leave, things get colder and colder.


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