Jordan Belfort, the former stock broker made famous by Leonardo DiCaprio in Martin Scorsese’s “Wolf of Wall Street,” is intimately familiar with scams.
He served 22 months in a California prison after pleading guilty in 1999 to a seven-year scheme at his Long Island brokerage, Stratton Oakmont, which manipulated the price of stocks and left investors holding nearly worthless securities. According to Belfort, that experience has given him insight into a modern financial asset: Bitcoin.
“[Bitcoin] is all based on the Great Fools Theory,” Belfort says in a recent YouTube video. “I know this better than anyone in the world. I’m not proud of that, but I do.”
Belfort says bitcoin’s price surges are thanks only to a belief by buyers that there will continue to be ‘greater fools’ who they can sell the asset to at a higher price.
Bitcoin traded near $6,600 Monday morning according to data from Coindesk, a 12 percent rebound from the cryptocurrency’s lows last month. In 2017, bitcoin soared from below $1,000 to over $19,000 in December, before plummeting at the start of this year.
“There’s no fundamental value [with bitcoin], it’s all based on the next guy and the next guy,” he says. “Get out if you don’t want to lose all of your money because … there’s a very good chance it’s going to crack. And when it really cracks, you’re not going to be able to sell on the way down, there will be no liquidity.”
The Greater Fools Theory is an idea Belfort himself profited from at Stratton Oakmont.
And he’s not the only one who sees bitcoin in this light. Billionaires Bill Gates and Warren Buffet have similarly criticized bitcoin.
“As an asset class, you’re not producing anything and so you shouldn’t expect it to go up. It’s kind of a pure ‘greater fool theory’ type of investment,” Microsoft co-founder Gates told CNBC on “Squawk Box” in May. “Bitcoin and ICOs, I believe completely [they’re some] of the crazier, speculative things.”
Warren Buffett, the CEO of Berkshire Hathaway and a long-time cryptocurrency critic, explained bitcoin’s lack of intrinsic value like this: “You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more.”
But proponents for the cryptocurrency argue that the blockchain technology underpinning bitcoin will revolutionize financial systems and become more valuable in the process.
Bitcoin investor and venture capitalist Cameron Winklevoss told CNBC in February he estimates the market capitalization could reach $5 trillion, based on analysis of the gold market. His twin brother Tyler Winklevoss added, “You know the criticisms are just a failure of the imagination.”
Financial institutions are also eyeing the industry. In May, Goldman Sachs announced plans to open a bitcoin trading operation, and Ripple CEO Brad Garlinghouse told CNBC he anticipates “dozens” of banks will be using its blockchain products and cryptocurrency XRP by next year.
For Belfort, the whole idea seems a bit too familiar: “I lived this, I was the guy on the other side of it,” he says. “I know what’s going on and this is the beginning of the end.”
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