'Wolf of Wall Street' warns investors of the next big trap: Bitcoin

Former penny-stock broker Jordan Belfort spent nearly two years in prison for scamming investors. Bitcoin, he has no doubt, is the next trap that could leave some retail investors penniless.

"I was a scammer. I had it down to science and it's exactly what's happening with bitcoin," he told CNBC in a recent documentary. "The whole thing is so stupid, these kids have gotten themselves so brainwashed."

Belfort ran an over-the-counter brokerage house on Long Island called Stratton Oakmont, and pleaded guilty in 1999 to manipulating investors into buying stocks that eventually turn out to be worthless. The former broker's story was made famous by Leonardo DiCaprio in Martin Scorsese's "Wolf of Wall Street."

In order to manipulate markets, Belfort highlighted the need for demand. "Back in the day" he had an army of people calling around the country and the world convincing people to buy stocks he would later "dump" and profit off of.

In the internet age, that manipulation tactic has become easier. Cryptocurrency fundraising known as initial coin offerings, known as ICOs, in many cases turned out to be frauds and have become the target of Securities and Exchange Commission investigations. Google, Facebook, and Twitter all outlawed advertising of ICOs on their platforms.

"This thing is gonna evaporate like a mirage," Belfort said. "There's a lot of really honest people who are gonna get slaughtered."

He predicted that it could go bust within the year, and when it does, will be "the bust heard around the world."

Belfort also challenged bitcoin's security, the idea that it could dissolve a need for central banks, and the argument that governments would allow an anonymous currency without regulation.

"We don't even know how bad it really is," he said. "For the average person who's really — you know, with a good heart, who walks in saying, 'I just — I want — I do because I believe in it, in the long term thing,' just f*cking run."

Belfort is in good company. Corporate leaders including Jamie Dimon, Ray Dalio and Bill Gates have challenged the validity of bitcoin, and Warren Buffett famously called it "rat poison squared" ahead of the Berkshire Hathaway shareholder meeting in May.

— Catch the CNBC Original, "Bitcoin: Boom or Bust" Monday, August 27 at 6P ET/3P PT

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