A woman uses a Bitcoin ATM machine placed inside a security cage on January 29, 2021 in Barcelona, Spain.
Cesc Maymo | Getty Images
Bitcoin is an “economic side show” and innovation at fintech is the story that will dominate financial services, according to JPMorgan.
Bank analysts said that despite bitcoin’s monstrous recovery, the cryptocurrency is still plagued by a number of problems that could prevent it from becoming a common asset.
“Bitcoin prices continued their meteoric rise with the Tesla, BNY Mellon and Mastercard ads for greater acceptance of cryptocurrencies,” JPMorgan said in a research note last week.
“But innovation in fintech and the increased demand for digital services are the true story of Covid-19 with the rise of online start-ups and the expansion of digital platforms for credit and payments.”
Bitcoin gained momentum with major Wall Street banks and Fortune 500 companies, a development that raised its price and reached $ 1 trillion in market value last week.
Investors made comparisons between bitcoin and gold, seeing the first as a new value digital store thanks to its limited supply – the total number of bitcoins that will exist is limited to 21 million.
JPMorgan’s own strategists say that bitcoin could rise up to $ 146,000 when competing with gold as a potential protection 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 survey said investors see bitcoin as the most extreme bubble in the financial markets.
Digital gold?
JPMorgan’s strategists said that current bitcoin prices seem “unsustainable” unless the cryptocurrency becomes less volatile. They added that their $ 146,000 price target depended on the volatility of bitcoin “converging on that of gold”, which would likely take years to happen.
Meanwhile, cryptocurrencies have “questionable diversification benefits” and are classified as the “weakest hedge” against significant falls in stock prices, analysts at JPMorgan said.
JPMorgan is advancing in blockchain technology with its own cryptocurrency called JPM Coin and a new business unit called Onyx.
The rise of digital finance and the demand for fintech alternatives is “the true story of financial transformation in the Covid-19 era”, according to JPMorgan.
“Competition between banks and fintech is intensifying, with Big Tech having the most powerful digital platforms due to its access to customer data,” said the bank.
“The ‘coopetition’ between ‘Fin’ and ‘Tech’ players is ahead, with banks increasing investments to close the technology gap, and the battle between American banks and non-bank fintechs is also taking place on the regulatory front. “
Big tech companies like Apple and Google have recently shown growing interest in financial services. Apple launched its own credit card in partnership with Goldman Sachs, while Google is allowing its users to open checking accounts after a deal with Citigroup.
“Traditional banks can emerge as the ultimate winners in the digital age of banks due to the advantages of deposit franchising, risk management and regulation,” said JPMorgan.
The digital bank exploded in the coronavirus era, with major creditors and fintechs seeing increased adoption, as people are spending more time at home due to public health restrictions.