Analysis of JPMorgan shows a Strong Chance of Bitcoin SurvivingJune 16, 2020
One of the oldest investment banks in the US, JPMorgan, recently provided an analyst of the bitcoin position in the wider economic system. However, unlike its counterparts in Goldman Sachs, here the analysts had a mixed to positive picture of BTC. In their view, bitcoin proved to be a resilient asset, even though it is nowhere near a useful or stable currency.
The evidence for this was seen during the March global financial crisis that was directly linked to the outbreak of the COVID-19 coronavirus pandemic. The analysis came in the note that it provided to its investor clients. This began circulating on June 11 and it showed how BTC moved from an asset that is generally uncorrelated to the traditional market to one that follows closely the global stock patterns.
At the same time, however, this asset continues to have the ability to quickly break off from those traditional tradable assets and get in its independent mode. This already occurred with the price of bitcoin which rebounded quickly from its low points in March. In comparison, the traditional stocks mostly stayed in place after the massive shedding of value they also went through.
Equities and Fiat Currencies
The analysts of JPMorgan saw an interesting change in the market correlations. Previously, the correlations were at best case modest and more than often non-existing. Now, more precisely in the past several months, the correlation moved sharply up in the cases of, for example, equities. In the case of things like fiat currencies – especially US dollars – but also commodities like gold, the correlation is a lot lower. Yet, even in these cases, the cryptocurrency managed to increase its overall correlation and not just compared to its early years, but also its spikes in value like the period in 2017 when BTC price reached its record level.
Also, the JPMorgan analysis noted that bitcoin managed to outperform traditional assets during the March instability. The report notes that the liquidity on big bitcoin exchanges was a lot more resilient than that of traditional assets like gold, US Treasury bonds, and equities. It even offered a bigger level of liquidity than the regularly very adept foreign exchange. None of these accomplishments are either minuscule or a fluke of random luck. Instead, they testify about the changing landscape of bitcoin and crypto markets in general.
Big Fall, Big Recovery
None of this detracts from the fact that bitcoin also saw a huge drop in liquidity when the crisis reached its peak in March. However, the disruption it underwent was resolved and normalized much faster than compared to any other class of asset. Presently, the bitcoin market depth is significantly above its one-year trailing average. The level of liquidity in the traditional asset classes is still waiting for that recovery, weeks after BTC found its bearing.
Interestingly, the report also notes that stablecoins, digital currencies pinned to traditional fiat currencies, did not undergo practically any additional turbulence. While this has less influence on the crypto native markets, it also showcases that stablecoins could play a big role in financial procedures like international transfers, especially in times of crisis when other means might be under more pressure.
No Safe Haven
While JPMorgan analysts believe that bitcoin passed its biggest stress test since the Mt. Gox scandal and exchange implosion, they also addressed some other elements of the cryptocurrency that are faulty in their view. First is the idea that bitcoin can act as a safe haven for protecting assets during turbulent periods. This is the so-called digital gold theory that came under a lot of criticism even before this analysis. Instead, their value and price movement closely correlated that of traditional riskier assets, more precisely equities. Here is also where the report makes its crucial conclusion regarding the future of bitcoin.
JPMorgan believes that bitcoin has a high chance of surviving, but not as a medium of exchange or that which can store value in a stable manner. Instead, it will continue to play its present role which is that of a vehicle of speculation. All of this might sound like very faint praise of the bitcoin network, but many are pointing out that ultimately, JPMorgan believes that their clients should not consider BTC as a form of a potential investment. However, when the previous statements of the JPMorgan chairman and CEO of the same bank, Jamie Dimon, are taken into consideration, this is so far the most shining report that this cryptocurrency received.
Cryptocurrency and Institutions
The analysis once more showcases that strange and evolving relationship between the institution investors (or potential investors) and the cryptocurrencies themselves. While many believe still to this day that the majority of bitcoin users are esports players, fringe journalists, and tech-savvy early adopters, the same group is expanding all of the time. In many ways, this is still true because any and all big investment banks and other similar organizations will not suggest to their clients to buy or trade digital currencies.
There is a practical reason for that – they are not recognized as legal tender by any government in the world, suggesting something like that would be foolhardy. However, this analysis points out that no financial institution can openly ignore cryptocurrencies, especially because it is more clear with each passing month that bitcoin does not actually need their support or acknowledgment to expand in value or adoption. This puts entities like JPMorgan in a sketchy position.
Privately, it is likely that any financial advisor would support the desire of their clients to invest tiny parts of their portfolios into cryptocurrencies. After all, even though bitcoin is not digital gold, this kind of hedging process would be immensely valuable in another bull run scenario. In 2020, no financial company that has its ear to the ground could easily reject this as a plausible development in the next 24 months. As the gears of crypto keep turning, it is more and more clear that JPMorgan and only other such entities cannot allow itself to simply call BTC a scam or a non-existent monetary setup.