A woman uses a Bitcoin ATM placed inside a security cage on January 29, 2021 in Barcelona, Spain.
Cesc Maymo | Getty Images
Bitcoin is an “economic spectacle” and fintech innovation is the story that will dominate financial services, according to JPMorgan.
Bank analysts said that despite Bitcoin’s monstrous rise, the cryptocurrency is still plagued by a number of problems that could prevent it from becoming a major asset.
“Bitcoin prices have continued their meteoric rise with announcements from Tesla, BNY Mellon and Mastercard of greater acceptance of cryptocurrencies,” JPMorgan said in a research note last week.
“But fintech innovation and rising demand for digital services are the true story of Covid-19 with the rise of online businesses and the expansion of digital platforms into credit and payments.”
Bitcoin has gained strength with major Wall Street banks and Fortune 500 companies, a development that has raised its price and seen it reach $ 1 trillion in market value last week.
Investors have made comparisons between bitcoin and gold, seeing the former as a new digital store of value thanks to its limited supply: the total number of bitcoins that will exist up to 21 million.
JPMorgan’s own strategists say Bitcoin could rise to $ 146,000 as it competes with gold as a potential hedge against inflation in the coronavirus crisis.
Still, skeptics remain unconvinced. Economists like Nouriel Roubini say that bitcoin and other cryptocurrencies have no intrinsic value. And a recent Deutsche Bank poll said investors view bitcoin as the most extreme bubble in the financial markets.
Or digital?
JPMorgan strategists said current bitcoin prices seem “unsustainable” unless the cryptocurrency is less volatile. They added that its $ 146,000 target price depended on the volatility of Bitcoin “converging to that of gold,” which would likely take years to happen.
Meanwhile, cryptocurrencies have “dubious diversification benefits” and are classified as the “poorest hedge” in the face of significant declines in stock prices, JPMorgan analysts said.
JPMorgan has been driving blockchain technology with its own cryptocurrency called JPM Coin and a new business unit called Onyx.
According to JPMorgan, the rise of digital finance and the demand for fintech alternatives are the “real story of the financial transformation of the Covid-19 era.”
“Competition between banks and fintech technology is intensifying as Big Tech owns the most powerful digital platforms due to its access to customer data,” the bank said.
“Cooperation” between “Fin” and “Tech” players is ahead, banks intensify investment to bridge technology gap and battle between US banks and non-bank fintechs is also playing out at the front regulator “.
Recently, leading technology companies such as Apple and Google have shown a growing interest in financial services. Apple launched its own credit card in partnership with Goldman Sachs, while Google allows its users to open checking accounts after a link with Citigroup.
“Traditional banks could emerge winners in the end in the digital age of banking because of their advantage of deposit franchise, risk management and regulation,” JPMorgan said.
Digital banking has grown in the era of the coronavirus as large lenders and fintechs experience an increase in adoption as people spend more time at home due to public health restrictions.