FinTechPayments TechnologyJPMorgan underlines crypto’s future

JPMorgan underlines crypto's future

In what JPMorgan describes as cryptocurrency’s first stress test, the digital asset shows promise for further corporate use

Due to its performance under coronavirus stress testing, cryptocurrencies may have longevity as an asset class, according to a mid-June JPMorgan report.

The report, seen by The Global Treasurer entitled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?” could not find enough evidence for crypto to yet be a ‘safe haven.’ Rather, crypto’s resilience and low drawdown to volume ratios indicate its future potential.

Tom Albright, interim chief executive officer of crypto exchange Bittrex Global, believes that cryptos have longevity as an asset class in the corporate space, citing the 10 years of volatility, down cycles and Bitcoin’s evolution.

“It’s still here and still going strong, and still garnering lots of institutional interest—and even more mainstream interest,” Albright says. “I think that traditional financial firms are recognising that, and it’s something that will stick around for the long term.”

Since early March, crypto has traded similarly to other volatile assets, although Bitcoin did crash below $4,000 in that month. By the end of April, it had recovered nearly all of those losses, while other assets still hadn’t recovered by late May.

While JPMorgan has been critical of crypto investments in the past, the report highlights that cryptocurrency’s liquidity was found to be more resilient than “traditional macro asset classes like FX, treasuries, gold and equities.”

“This all likely points to the continued survival of the asset class, but likely still more as a vehicle for speculation than as a medium of exchange or store of value,” the report concluded.

Stablecoins, a form of cryptocurrency which can be pegged to exchange-traded commodities, fiat or even cryptocurrency in an effort to control price stability, received praise in the report for their performance throughout coronavirus.

The report noted that some stablecoins, such as Tether, USDCoin and Facebook’s forthcoming Libra, were found to have held their backing throughout most of the crisis, while daily volatility remains high.

“You can manage your treasury the same way you would with fiat, but you have the ability to move funds quickly and take advantage of the benefits of cryptocurrencies,” Albright says. “So, I think stablecoins in particular are an incredibly interesting use case for corporate treasury management and cash management.”

Albright says that the use of stablecoins use is growing, adding that Bitcoin in particular could have a prominent future within the corporate space as only 21 million Bitcoins can ever be mined.

“It’s set up almost opposite to fiat currencies and other things in that it’s essentially deflationary, so it’s a very strong hedge against fiat currency deflation—and the money printing and quantitative easing we’re seeing today, it really shows the strength of it,” Albright says.

JPMorgan’s report stands in contrast to Goldman Sachs’ Investment Strategy Group’s May investor call, which stated that “cryptocurrencies including Bitcoin are not an asset class,” citing a lack of cash flow generation, like bonds.

“We also believe that while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale,” according to the US investment bank.

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