A woman uses a Bitcoin ATM in a security cage on January 29, 2021 in Barcelona, Spain.
Cesc Maymo | Getty Images
Bitcoin is an “economic sideshow,” and fintech innovation is the story that will dominate financial services, according to JPMorgan.
Analysts at the bank said that despite Bitcoin’s monster rally, the cryptocurrency is still fraught with a number of issues that could prevent it from becoming a mainstream asset.
“Bitcoin prices have continued to soar as Tesla, BNY Mellon and Mastercard all announced their acceptance of cryptocurrencies,” JPMorgan said in a research report last week.
“But fintech innovations and the increased demand for digital services are the real story of Covid-19 with the advent of online startups and the expansion of digital platforms to include loans and payments.”
Bitcoin has grown in importance with major Wall Street banks and Fortune 500 companies. That development has raised the price, reaching a market value of $ 1 trillion in the past week.
Investors have drawn comparisons between Bitcoin and gold, viewing the former as a new digital store of value thanks to its limited supply – the total number of Bitcoins ever existing is capped at 21 million.
JPMorgan’s own strategists say Bitcoin could reach as high as $ 146,000 as it competes with gold as a potential hedge against inflation in the coronavirus crisis.
Still, skeptics don’t remain convinced. Economists like Nouriel Roubini say that Bitcoin and other cryptocurrencies have no intrinsic value. According to a recent survey by Deutsche Bank, investors view Bitcoin as the most extreme bubble in the financial markets.
JPMorgan strategists said current bitcoin prices are “unsustainable” unless the cryptocurrency becomes less volatile. They added their price target of $ 146,000, which depends on bitcoin’s volatility “approaching that of gold,” which would likely take years.
Cryptocurrencies now have “questionable diversification advantages” and are considered the “poorest protection” against significant price losses, according to analysts at JPMorgan.
The bank has advanced blockchain technology with its own cryptocurrency JPM Coin and a new business unit called Onyx.
The rise in digital finance and the demand for fintech alternatives are the “true financial transformation story of the Covid-19 era,” according to JPMorgan.
“The competition between banks and fintech is intensifying as Big Tech has the most powerful digital platforms because of its access to customer data,” said the bank.
“The ‘co-petition’ between ‘fin’ and ‘tech’ players lies ahead. Banks are stepping up investment to fill the technology gap, and the battle between US banks and non-bank fintech is also played out on a regulatory level from.”
Big tech companies like Apple and Google have shown increased interest in financial services recently. Apple, in collaboration with Goldman Sachs, has introduced its own credit card, while Google, following a collaboration with Citigroup, enables its users to open checking accounts.
“Traditional banks could become endgame winners in the digital age of banking because of their advantages of deposit franchise, risk management and regulation,” said JPMorgan.
Digital banking boomed in the coronavirus era. Large lenders and fintechs saw a surge in adoption as people spend more time at home due to public health restrictions.