Photographic film giant Kodak was founded in September 1888. For most of the last century, it dominated the sector. The idea of a “Kodak moment” was one of the most memorable lines of advertising copy of all time, achieving the ultimate prize… entering our very lexicon (along with the verb “Google” and noun “Post-it” note).
Kodak co-founder George Eastman once said, “The world is moving, and a company that contents itself with present accomplishments soon falls behind.”
These were words by which he ran the company. He had given up on what was a successful dry-plate (which was used before film) business to initially embrace film and then moved to colour film (even though at the time it was inferior to black and white film)… a market segment that his company dominated.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
In 1932, two years after Kodak was added to the Dow Jones Industrial Average index, Eastman took his own life. But the company he founded would thrive through much of the rest of the century, before finally succumbing to bankruptcy in 2013.
Kodak’s demise stemmed from the company’s decision to ignore digital photography, a technology that a Kodak engineer by the name of Steve Sasson invented in 1975.
Mr. Sasson later reflected on Kodak management’s attitude towards digital photography: “It was filmless photography, so management’s reaction was, ‘that’s cute – but don’t tell anyone about it.’”
In the early 1980s, Kodak explored digital photography and concluded that it had the potential to take over the traditional film business that Kodak dominated.
George Fisher, Kodak’s CEO from 1993 to 2000, said in a December 1999 interview that the company regarded digital photography as an enemy that would kill the chemical-based film and paper business from which Kodak had handsomely profited for so long.
Somewhat ominously, in 1999 Fisher said that “there are 117 dot-com companies out there who keep saying they'll eat Kodak and Fuji up. It amazes me how many smart people believe such stupid statements.”
The contempt of large incumbents that enjoy a profitable status quo for new and potentially disruptive technology isn’t new.
But Kodak sprang to mind after catching the latest episode of the Larry and Jamie show…
These “financial masters” are declaring the death of bitcoin
At an Institute of International Finance conference in Washington last Friday, Larry Fink, the chairman and CEO of the world’s largest asset manager, BlackRock, said:
“Bitcoin just shows you how much demand for money laundering there is in the world… That's all it is.”
One has to admire the chutzpah, if not the ignorance, of Fink. Clearly, he has either not read, or ignored, a report from the UK Treasury, released a full two years ago, that concluded:
“There are a limited number of case studies upon which any solid conclusions could be drawn that digital currencies are used for money laundering. There are concerns around anonymity, faster payments, and ability to provide cross border remittances and facilitate international trade. These issues are similar to issues identified with many other financial instruments, such as cash and e-money.”
Fellow financial master JP Morgan CEO Jamie Dimon was also on hand at the conference to weigh in once again on bitcoin (despite declaring he would no longer comment on it less than 48 hours earlier).
“But what is the use case for bitcoin? You’re in Venezuela, North Korea, you’re a criminal. Great product!” he said, apparently to fellow howls of derision from the finance masters in the audience.
Once again, what’s telling is not the ridicule of bitcoin, but the displays of what I can only call “crypto illiteracy”.
Anyone who claims bitcoin is a fraud or isn’t real simply doesn’t understand the cryptocurrency. As we’ve written before, bitcoin is simply a cryptographically secure medium of exchanging value.
And as for the use case? Consider this…
My paycheck was nearly two weeks late this month, thanks to the inability of Asian banking giant DBS and global banking powerhouse HSBC to process a simple international bank transfer – despite having been able to with no problem the previous month.
A dozen emails, several irate phone calls, numerous escalations to supervisors and probably two dozen man-hours of work later, the transaction was complete.
The transaction could have been executed using bitcoin in minutes… (and mere seconds using other, faster processing crypto currencies)… but hey, fast, borderless payments is hardly a “use case” according to the CEO of a global mega-bank (who I can only presume still uses roll film).
Interestingly, Dimon’s Goldman Sachs counterpart, Goldman Sachs CEO Lloyd Blankfein, has reportedly stated that he hasn’t made up his mind about bitcoin yet.
This is probably a wiser stance to take. Goldman has long recognised the importance of technology. It’s why one-third (yes, 33 percent) of Goldman’s employees are involved in tech.
Now, if Fink and Dimon stood up and said they’ve personally summoned the brightest minds in crypto, done a deep-dive into the space, and their honest conclusion WAS that bitcoin and its ilk are all a complete waste of time, then I’d accept their opinion. I might respectfully disagree with their conclusion, but at least they would have informed themselves.
But that’s not what they did.
Here’s why these masters are furiously opposed to bitcoin
First, Dimon and Fink are probably terrified. Both are exceptionally clever men who head up some of the largest, richest and most powerful institutions in the world. They likely recognise that the banks of the future won’t be financial institutions – they’ll be technology companies. And these technology companies will be built on blockchain.
More importantly, these new banks will be built from the ground up in a way that simply won’t be possible by the likes of JP Morgan. It’s like a traditional bookseller thinking he can compete with Amazon just because he puts up a website selling his books online.
Second, it looks like Dimon and Fink are hoping that government regulation will save them. They’ve both focused on the illegality of bitcoin, of money laundering and in Jamie’s case, that governments simply won’t allow it… that they’ll shut it down.
Take a look at this quote from Dimon on bitcoin:
“It doesn't have the standing of a government… a lot of it is being used for illicit purposes. And people who will get upset with it is governments. Governments put a huge amount of pressure on banks: know who your client is, did you do real reviews of that. Obviously it's almost impossible to do with something like that.”
Dimon said this in January 2014… nearly four years ago.
Yet, last month, once again he said: “the bigger they get, the more governments are going to close them down”.
It would appear that Jamie is imploring the government and the regulators to step in. For an incumbent like JP Morgan or BlackRock, the best defence against their institutions possibly being usurped by blockchain-based technology upstarts is to frame the debate before it’s even begun. That means calling bitcoin a scam and a fraud, used only by money launderers and criminals.
(We’ll ignore for the time being the US$2 billion fine paid by JPMorgan for failure to report on suspicious activity from one of the biggest Ponzi schemes of all time, run by Bernie Madoff.)
With something as new and volatile as bitcoin and other crypto assets, healthy scepticism is your best friend. But be wary of blanket statements from seemingly ill-informed incumbents who stand to lose a lot should cryptos and blockchain fulfil even a fraction of their potential.
In the meantime, we maintain that investors looking to enter this asset class should start by owning and tucking away a small amount of bitcoin as a buy and hold investment.