Analysts at JPMorgan, a New York-based multinational financial services firm with over $2.6 trillion in total assets, have said that the value of cryptoassets is unproven and their underlying blockchain technology will not help improve traditional banking processes for at least the next few years.
Cryptoassets Useful Only In "Dystopian Scenario"
JPMorgan's market analysts shared a report with Reuters in which they noted that digital assets would only have value if investors throughout the world lost confidence in more established forms of investments or assets. The researchers believe cryptoassets would make sense in a “dystopian scenario” where investors have lost faith in the US dollar and gold.
JPMorgan’s research report also argued that:
Even in extreme scenarios such as a recession or financial crises, there are more liquid and less-complicated instruments for transacting, investing and hedging.
Moreover, the report pointed out that investors would have to completely lose trust in the global payments system and all major reserve assets before considering investing in bitcoin (BTC) and other cryptocurrencies.
Institutional Investors Stepping Away From Crypto
JPMorgan’s analysts claim that low bitcoin futures trading volumes indicate that financial institutions are not participating in crypto markets as actively as they were in previous months. Currently, the crypto investments sector is mainly receiving contributions from individuals, the US bank’s research analysts said.
According to JPMorgan, most traditional asset managers and pension funds have not considered investing in cryptoassets due to their high volatility, security flaws, and concerns regarding their use to finance illicit activities. The American bank’s analysts believe cryptocurrencies will remain “challenged” as there are better payment methods available due to advancements in fintech. Most major retailers are also not accepting digital currency payments, the analysts claim.
Present market conditions suggest that cryptocurrencies may be increasingly adopted in places where small business owners and individuals have more control over how payments are processed, JPMorgan said. Bitcoin (BTC) is currently trading at $3,587.79 according to CryptoCompare data - after recording an all-time of nearly $20,000 in December 2017.
BTC Price May Drop Below $1,260, But Blockchain Could Improve Trade Finance
Notably, JPMorgan has cautioned that the bitcoin price could drop below $1,260 if the current bear market persists. As mentioned, JPMorgan’s researchers don’t think distributed ledger technology (DLT) will make a significant impact on existing financial infrastructure. However, the research team has stated that blockchain-based systems could potentially reduce operational costs for financial institutions in the coming years.
Trade finance might also benefit from blockchain technology, however DLT-enabled platforms are not yet ready to make immediate and significant improvements to most existing business processes, JPMorgan concluded.