J.P. Morgan Private Bank Strategist on Crypto: “I Recognize That I Am Late to This”

In the February edition of J.P. Morgan Asset & Wealth Management’s “Eye on the Market” newsletter, Michael Cembalest explores “the adoption trends, capital flows, and then use applications relating cryptocurrencies and blockchains.”

Cembalest confessed in this 28-page study paper (named “The Maltese Falcon”) that he “did not predict the surge in crypto values from $25 billion to $250 billion to $2.5 trillion” (approximately $2.12 trillion) adding that he has been “late” to the crypto event.

He further said that he was already just speaking for himself in this report and not on behalf of his company.

J.P. Morgan Strategist talking about Crypto

Here are a few of the highlights we have from the report:

Ray Dalio, CEO of Bridgewater Associates, believes that institutional investors presently hold 1 million Bitcoin through custodial intermediates and that the price of Bitcoin would climb in parallel with the US stock market.

“A lot of money is coming into crypto and blockchain businesses,” he says.

Stablecoins are now used insignificantly for cross-border remittances, but their use by individuals with bank accounts is anticipated to expand (in countries where they are permitted), given the sometimes higher costs of traditional channels.

Whereas the merchant’s Bitcoin price only fluctuates to match the price of a product or service in fiat money, the majority of merchants quickly hedge their Bitcoin exposure.

“Stablecoins are sometimes referred to as being backed by “reserve assets.” However, there are no rules for the composition of stable coin reserve assets, and publicly available information is inconsistent in terms of substance and frequency.”

“Right now, roughly $100 billion is “locked up” in Defi activities.” This relates to the amount of crypto collateral placed in Defi apps; because to double-counting and leverage, this number is imprecise.”

“The NFT market’s Achilles’ heel: just as Bitcoin ownership is extremely concentrated, so is the NFT art market.

” Research of the SuperRare NFT art platform found that the majority of its works were held by just four collectors, with just three degrees of separation between them and the 16,000 pieces of art they gathered.”

Susquehanna Bank trades Bitcoin, Ether, Bitcoin Cash, and Bitcoin futures for its customer base, while Deutsche Bank is developing a trading and token issuing platform.

The same denominator: extremely minimal primary risk in cryptocurrencies, with the purpose of benefitting from their clients’ rising adoption, trading, hedging, and lending.”

Cembalest addressed some of the comments he had received from blockchain and crypto professionals to whom he had shown a draught version of the study at the conclusion of the report:

•  There hasn’t been enough exploration of prospective revenue sources related to cryptocurrency.
• Recall the 1800s’ electrical warfare.
•  Too US-centric
•  Generational wealth transmission or evolving investing preferences are not mentioned.

Related content: $BTC: Investment Strategist Lyn Alden Is Bearish on Bitcoin in 2022