JPMorgan Asset Management Chief Slams Bitcoin in ‘Maltese Falcoin’ Report

Bitcoin’s lofty valuations are the “stuff that dreams are made of.”

So says Michael Cembalest, J.P. Morgan Asset & Wealth Management’s president of marketplace and concern strategy, successful a study that riffs connected “The Maltese Falcon,” the 1941 movie astir a priceless artifact that comes to symbolize greed, and which turns out, successful the end, to beryllium fake.

“I won’t beryllium buying it adjacent though portion of maine wants to, careless of consequences, since that’s what immoderate crypto holders person been counting connected from the beginning,” helium wrote.

In his 30-page investigation, “The Maltese Falcoin: On cryptocurrencies and blockchains,” Cembalest swoops connected what helium sees arsenic crypto’s much-vaunted but brittle usage cases, specified arsenic store of value, cross-border remittances, decentralized concern (DeFi), non-fungible tokens (NFTs) and blockchain adoption successful fiscal services.

Starting with bitcoin arsenic a store of value, Cembalest says helium understands wherefore radical are funny successful cryptocurrencies with a fixed proviso arsenic a store of value, fixed the developed satellite has drowned itself successful indebtedness and fiat money, astatine a gait that dwarfs thing seen successful the aftermath of the fiscal situation successful 2008.

“Central Banks and Treasuries person created a monolithic assurance void, and it would person been unusual if immoderate alternate to fiat wealth didn’t look connected the scene,” the study says.

Considering bitcoin arsenic a complement to gold, the store-of-value thesis holds up, successful that much radical are utilizing it arsenic a integer equivalent, but falls down erstwhile it comes to volatility and crypto’s correlation with different systemic risks and inflation.

“Bitcoin’s volatility continues to beryllium ridiculously high, and its volatility often rises erstwhile equity marketplace volatility is rising too,” Cembalest wrote.

Such volatility could beryllium the byproduct of bitcoin concentration, the study states, adding that immoderate 2% of bitcoin holders ain 72% of its value. “For each the libertarian anti-elitists retired there, that’s adjacent worse than the attraction of US household wealth: it takes 10% of US households to get to 70% wealth, alternatively than conscionable 2%,” helium noted.

The study estimates that crypto has lone managed to seizure astir 1% of remittances, a marketplace ranging from $500 cardinal to $600 cardinal per twelvemonth implicit the past decade.

The imaginable outgo savings are hampered by the information that recipients would request slope accounts successful the destination state to beryllium capable to person from crypto to cash.

“For radical with slope accounts, off-ramp costs from crypto to fiat are adjacent to the outgo of converting from dollar-based stablecoins to section currency, and past immoderate outgo of withdrawing that fiat,” Cembalest wrote.

Cembalest acknowledges that disintermediation of banks and fiscal services is ongoing acknowledgment to the emergence of assorted fintech platforms but makes a withering appraisal of however it’s done successful DeFi.

“From what we tin tell, astir DeFi lending is simply over-collateralized crypto loans to different holders of crypto truthful that the second tin either (a) bargain much crypto, oregon (b) get liquidity against appreciated crypto holdings without incurring superior gains taxes. Either way, it does not look to beryllium the benignant of lending enactment that could past a ample sustained diminution successful crypto prices themselves,” says the report.

Drawing connected the acquisition of fintech-enabled peer-to-peer lending, Cembalest pointed to information showing higher indebtedness delinquency rates than accepted slope loans, which is mostly a relation of weaker underwriting standards. He added that a level similar Lending Club has seen its banal diminution by 65% from its caller peak.

As acold arsenic a aboriginal satellite of peer-to-peer uncollateralized lending connected blockchains goes, Cembalest said: “Good luck with that,” pointing to characteristics that mightiness “terrify participants” successful accepted collateralized lending pools.

“Crypto collateral whitethorn not beryllium dedicated and assigned solely to the enactment against which it is posted. In different words, crypto collateral tin beryllium ‘rehypothecated’ to backmost aggregate activities,” the study says. “If you don’t retrieve what that connection means, benignant ‘rehypothecation’ into Google on with the words ‘financial crisis’.”

Cembalest “oddly enough” does not disregard the NFT phenomenon, citing the accelerated emergence of modern creation successful the 20th century, which galore radical inactive find inaccessible oregon confusing.

“Just due to the fact that you mightiness not admit the creator merit of Bored Ape Yacht Club NFTs, that doesn’t mean others won’t,” the study says.

One Achilles’ bottommost erstwhile it comes to NFTs is the attraction of ownership, Cembalest said, conscionable arsenic bitcoin ownership is highly concentrated. He cited a survey of the SuperRare NFT creation level that revealed conscionable 4 collectors owned astir of its works with lone 3 degrees of separation betwixt them and the 16,000 works of creation they collected.

“This is simply a precise precocious grade of insularity, adjacent for standards of the creation market. The survey besides recovered that the secondary marketplace was adjacent much concentrated than the superior market,” the study notes, portion acknowledging creation is 1 subset of the broader NFT space.

A recurring motif successful Cembalest’s reasoning is the accelerated alteration of taste preferences successful caller times. That said, erstwhile helium circulated his study among immoderate crypto advocates and task capitalists, the astir communal effect was that helium was being shortsighted.

For instance, Cembalest’s portion was similar judging the worth of the net successful 1995, according to 1 commentator. Who would person thought a hunt motor would beryllium worthy a trillion dollars backmost then, for example.

Going further backmost successful time, different responsive said it would beryllium omniscient to retrieve the energy wars of the 1800s.

“The archetypal signifier of immoderate innovation rhythm is improvement of infrastructure,” the effect said. “The precocious worth applications travel later. That’s what happened during the energy wars erstwhile aboriginal usage cases were vastly underestimated, adjacent by the likes of Junius Spencer Morgan (father of JP Morgan) who thought energy was a fad and that kerosene lamps worked conscionable fine.”