A woman uses a Bitcoin ATM that was placed in a security cage in Barcelona, Spain on January 29, 2021.
Cesc Maymo | Getty Images
According to JPMorgan, Bitcoin is an “economic spectacle” and fintech innovation is the story that will dominate financial services.
Analysts at the bank said that despite bitcoin’s monster rally, the cryptocurrency is still plagued by a number of issues that could prevent it from becoming a mainstream asset.
“Bitcoin prices have continued their rapid rise with Tesla, BNY Mellon and Mastercard announcing greater adoption of cryptocurrencies,” JPMorgan said in a research note last week.
“But fintech innovation and increased demand for digital services are the real Covid-19 story with the rise of online start-ups and the expansion of digital platforms into credit and payments.”
Bitcoin has gained traction with major Wall Street banks and Fortune 500 companies, a development that has hiked the price and saw it hit a market value of $ 1 trillion last week.
Investors have made comparisons between bitcoin and gold and consider the former a new digital store of value thanks to its limited supply – the total number of bitcoins that will ever exist is limited to 21 million.
JPMorgan’s own strategists say bitcoin could soar to $ 146,000 as it competes with gold as a possible hedge against inflation in the coronavirus crisis.
Yet skeptics remain unconvinced. Economists like Nouriel Roubini say that bitcoin and other cryptocurrencies have no intrinsic value. And a recent study from Deutsche Bank said investors view bitcoin as the most extreme bubble in financial markets.
Digital gold?
JPMorgan strategists said current bitcoin prices seem “unsustainable” unless the cryptocurrency becomes less volatile. They added their target price of $ 146,000, based on bitcoin’s volatility “converging to gold,” which would likely take years.
Meanwhile, cryptocurrencies have “questionable diversification benefits” and are considered the “worst hedge” against significant stock price declines, JPMorgan analysts said.
JPMorgan has made a push 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 “real financial transformation story of the Covid-19 era,” said JPMorgan.
“Competition between banks and fintech is increasing as Big Tech has the most powerful digital platforms for their access to customer data,” the bank said.
“‘Co-opetition’ between ‘Fin’ and ‘Tech’ players is imminent, as banks are investing more to narrow the technology gap, and the battle between US banks and non-bank fintech is also playing out in the field of regulations. “
Major technology companies such as Apple and Google have recently shown more 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 linking with Citigroup.
“Traditional banks could emerge as endgame winners in the digital age of banking because of their advantage of deposit franchise, risk management and regulation,” said JPMorgan.
Digital banking has boomed in the coronavirus era, with both large lenders and fintechs seeing a surge in adoption as people spend more time at home due to public health restrictions.