The largest bank in the United States, JP Morgan, presented an 86-page report titled: «Prospect Analysis: Digital Transformation and Development of Fintech: Blockchain, Bitcoin and Digital Finance in 2021″.
The lending institution’s experts conclude that the COVID-19 pandemic has begun to affect global finance in such a way that there has been a demand for fintech innovations. Speaking about bitcoin, they declare the confidence that this phenomenon will not disappear just like that, and in some respects, at the global financial level, bitcoin begins to compete with both gold and world reserve currencies.
JP Morgan analysts «theoretically predict» that the price of bitcoin could rise to $ 146,000 if the capitalization of cryptocurrency # 1 is correlated with the overall valuation of gold bars in the world, which is determined through the circulation of exchange-traded funds (ETFs) for this metal.
JP Morgan said the Bitcoin price got a boost from the announcement of Tesla’s $ 1.5 billion investment in the digital asset. However, the current price level of a digital asset in the bank was considered «very higher than our, one of the most recent, estimates of its value, built on the basis of the cost of mining this cryptocurrency, as well as taking into account the risk in comparing investments in this asset with investing in gold.»
Jeroen Blockland, head of investment firm Robeco, praised the graph in the JP Morgan report. This graph indicates that Bitcoin has proven to be, despite its only 12-year history, the fastest growing investment asset when looking at the world’s financial history over the past 50 years.
#bitcoin in perspective. Nice chart from J.P. Morgan
– jeroen blokland (@jsblokland) January 22, 2021
Speaking about the reasons for this dynamic, JP Morgan notes: “The competition between bitcoin and gold will likely continue as millennials become an increasingly visible part of the investor world and given their preference for investing more in digital gold. than classic gold. «
JP Morgan estimates that there are currently 58 fintech companies with a capitalization of more than $ 1 billion in the world that will compete with banks for «dominance in the digital financial world.»
Cryptocurrency market risks
The March fall in bitcoin in 2020, although short-lived and occurring simultaneously with the collapse of the Wall Street indices, apparently left a strong impression on the bank’s experts (recall that then, in the middle of the month, cryptocurrency # 1 was worth less than $ 4,000). As a result, they conclude that «cryptoassets continue to be the weakest hedging option in the market against strong declines in securities.»
They believe that the more widespread investments in bitcoin become, the more there will be a correlation between its price and «cyclical assets», that is, for example, with the dynamics of the key index of the American stock exchange (SP 500).
Attention is drawn to the risk for Bitcoin, which lies in «the possibility of a sharp drop in confidence in the stablecoin Tether (USDT), which is likely to cause a strong liquidity shock and create risks of access to the largest pools of demand and liquidity.» Let us remind you that discussions are continuing in the expert community, which center around the topic of USDT reservation by US dollars.
Some believe that the lack of audited financial information on the current reserve (which it is), as well as the possible only partial coverage by real US dollars of the entire issued mass of USDT, could lead to the same risks that JP Morgan also drew attention to. US regulators are also currently trying to sort out the financial health of the company behind the USDT issue. The results of New York State’s two-year lawsuit against Tether are presented here.
Government digital currencies (CBDC)
JP Morgan expects central banks around the world to increasingly refine their cryptocurrency regulation over the next three years. At the same time, approximately every fifth inhabitant of the Earth will have access to various kinds of government stablecoins (CBDC) within the specified period.
If we talk about the prospects for CBDC and already existing digital assets, then JP Morgan decided to take a wait-and-see attitude. They do not intend to write off cryptocurrencies, especially emphasizing the innovative spirit of this phenomenon. On the other hand, they do not undertake to clearly predict how the market interaction between CBDC and, for example, Bitcoin will be built. At the same time, the bank emphasizes that CBDCs for their effectiveness will have to function on the blockchain.
The fate of the US dollar
Found a place in the JP Morgan report and geopolitics:
«The possibility of the emergence of a payment infrastructure that will not focus on the US dollar makes us talk about a geopolitical factor that, if it manifests itself, will need to be dealt with.»
Recall that various analysts have drawn attention to the fact that the development of digital infrastructure, including those focused on the use of blockchain and the use of cryptocurrencies, can potentially have a significant impact on the current state of global finance. As a result, the US dollar may lose the leading characteristics that it has as the world’s leading reserve currency and as the most common means of payment in international trade contracts.
CBDC: Assessing the Experience of China and Japan
The bank’s analysts believe that the launch of CBDCs by central banks could create the possibility of a dramatic change in the financial system, as a result of which commercial banks could lose the importance that they have today. JP Morgan recommends that regulators run CBDC in such a way that this probability is minimized.
Separately, the bank’s report highlighted the topic of DC / EP, that is, the digital yuan (CBDC), which the People’s Bank of China is already testing on a large scale. Since this CBDC is pegged to the Chinese currency, JP Morgan experts believe that DC / EP will not create serious risks for the dominance of the US dollar in global finance, since the common yuan has not yet become the leading global reserve currency, and its «digitalization» will reflect only the established order of things:
«Beijing will most likely not be able to reduce its dependence on the US dollar, as well as on SWIFT.»
An interesting analysis is provided regarding the situation with the CBDC concept in Japan. The private digital yen is expected to begin testing there in April this year. The organizer of the project, The Digital Currency Forum, brings together more than 30 large corporations and organizations in Japan who will take part in such testing, conducted under the supervision of local regulators.
As stressed in JP Morgan: «It is expected that commercial banks will be one of the key elements of the infrastructure for the circulation of the digital yen.» At the same time, it will be important for The Digital Currency Forum to work out a marketing strategy so that the digital yen is interesting for consumers to use financial services.
The topic of interaction between banks and innovations became one of the key topics in the report. JP Morgan believes that new technologies, for example, will help many US regional banks grow into large giants of global importance.
In China, experts saw a strengthening of the role of existing banks through the introduction of new technologies, in particular, mobile banking. The digitalization of the insurance and lending sectors is expected to become a global trend in the coming years. In the Middle East region, JP Morgan analysts have found rapid growth in the turnover of neobanks (organizations with digital banking licenses that only exist online), especially in the UAE.
JP Morgan about Russia
JP Morgan sees great prospects for the development of digital finance in Russia, whose economy they predict U-growth after weakening the impact of the COVID-19 pandemic. At the same time, they noted that those banks in Russia that had previously relied on online services were able to successfully pass the peak of the pandemic and are mainly increasing their turnover.
In the future, JP Morgan expects further growth in downloads and the use of mobile applications of banks and suggests that digitalization of banking services, having already gained popularity among customers, will be further demanded by consumers of such services.
Focus on the blockchain
The JP Morgan talk goes a long way towards the distributed ledger technology itself. So, in 2020, the bank launched a new business unit called «Onyx from JP Morgan», and the results of its activities were said as follows: «We managed to create an impressive portfolio of new products based on new technology in accordance with the mission of» Onyx from JP Morgan » to change the image of how a business can be built, how it can be managed differently, given its transformation due to the development of new infrastructure and services that become possible thanks to distributed ledger technology. «
In particular, we are talking about the emergence of a system that allows you to carry out REPO transactions on the blockchain. Liink by JP Morgan was also created – «the world’s largest blockchain system for institutional players, which is gaining more members and increasing the range of services.» In addition, JP Morgan mentioned the JPM Coin project, which is «a blockchain-based payment system and ledger of accounts.»
The bank stressed that «they plan to continue to increase investments in blockchain technologies, since many such investments have led to the fact that they have grown into developed areas of activity, and their scaling has become global.»
JP Morgan with its attitude to blockchain fits into the general trend. It is noteworthy that a little earlier the global IT giant, the IBM corporation, denied information that appeared in some media about the fate of its blockchain division, stressing that no fundamental changes were planned towards reducing the activity of this business unit.
JP Morgan and Bitcoin: the «ball» on the side of bank customers
What will JP Morgan itself do in connection with the development of digital assets, especially in terms of bitcoin? Jamie Dimon, head of JP Morgan, stated during a November 2020 conference that he still has no interest in Bitcoin.
However, in mid-February of this year, Daniel Pinto, the bank’s vice president of operations, said that although at present he does not see interest from the organization’s clients in transactions with bitcoins, “if over time, cryptocurrencies, like any asset class , may in its development come to be involved in various investment fund managers and ordinary investors, then, of course, we will have to be involved in working with such instruments. «
