Banking conglomerate, JP Morgan is keeping a close eye on the cryptocurrency market. The financial services giant recently published a 74-page report on the Cryptocurrency and Blockchain Ecosystem. Some key takeaways are:
- While blockchain technology has not yet emerged into the mainstream, it has moved beyond experimentation and use in payments, with stock exchanges embracing the efficiency around settlement/clearing and collateral management.
- Trade Finance and Payments blockchain solutions offer the most incremental efficiencies in the banking sector relative to other use cases
- The long-term potential for Distributed Ledger Technology (DLT) to transform banks’ business models by providing efficient and resilient information transfer and storage once scale has been achieved.
- The crypto market continues to grow with the increased participation by financial institutions and the introduction of new contracts on regulated exchanges.
- Derivatives markets such as options and futures are maturing at a rapid pace.
- Cashless economies work and increase financial inclusion with the example of China suggesting that the transition to a mostly cashless economy can be managed at scale.
The report also goes on to state that “Bitcoin prices have corrected much of the gap versus intrinsic value but have yet to demonstate their full value for portfolio diversification.” Later in the report JP Morgan expands on that statement and states that “despite their extraordinary standalone volatility, crypto assets still raise the efficiency of a multi-asset Equity and FICC portfolio (the Sharpe ratio, or return per unit of risk) due to high historical returns and low cross-asset correlations.”
In the last few years several financial institutions like JP Morgan have changed their tune on cryptocurrencies. Specifically, JP Morgan has gone from calling crypto “a fraud” in September 2017 to launching its own digital currency in February 2019 to openly stating in this report that cryptocurrencies can increase the efficiency of some investment portfolios.
To access the full report: Click Here