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Is Jamie Dimon Profiting From a “Ponzi Scheme”?
At the heart of modern finance lies a group of folks called market makers.
Market makers operate the “grease guns” of modern trading. Lubricating the wheels of global financial markets with their capital. A market maker’s job is to literally “make the market” in a stock, bond, commodity and even in a crypto.
They are the liquidity providers who buy from you when you sell and sell to you when you buy. They do this to capture the spread between the buy price (also known as the bid price) and the sale price (also known as the offer price).
In the exchange-traded fund (ETF) world, liquidity is provided by folks called authorized participants (APs). APs are market makers that have the right to redeem and create blocks of ETF shares directly with the ETF provider.
(An ETF is similar to a mutual fund but trades like a stock. Each share in an ETF gives you proportional ownership to an index like the S&P 500, a sector like technology or retail, or an individual commodity such as oil, gold or bitcoin.)
APs are usually large, well-capitalized financial firms. The APs make money by catching the spread between the shares they create and redeem with the ETF.
Their work is what keeps the price of the ETF closely aligned to the price of whatever index, sector or commodity the ETF is tracking.
And its highly profitable work.
In 2022, APs traded $6.7 trillion in assets for ETFs. While profits on these trades are not disclosed, just a small 0.01% spread capture would translate to $670 million in profits for their market making services to ETFs.
It’s no understatement when I say that without the APs there’s no ETF market… A market that is now valued at more than $11.5 trillion.
I bring this up because on April 18, JPMorgan Chase CEO Jamie Dimon was once again quoted bashing bitcoin.
During an interview with Bloomberg TV, Dimon said bitcoin is a scam and fails as a currency.
If you mean crypto like bitcoin, I’ve always said it’s a fraud,” he said. “If they think they're a currency, there's no hope for it. It's a Ponzi scheme.”
He called bitcoin “a fraud” and “a decentralized Ponzi scheme.” These are strong words from the world's most powerful banker.
If he truly believes this, surely he’s doing everything in his power to stay away from bitcoin.., to block access to bitcoin… and to make sure bitcoin never gets any liquidity from his firm, right?
Err… Actually, no. It’s the opposite…