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

In the February issue of the “Eye on the Market” newsletter, Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management, takes a close look at “the adoption trends, capital flows and use cases for cryptocurrencies and blockchains.”

In this 28-page research report (titled: “The Maltese Falcon”), Cembalest admitted that he “did not anticipate the increase in crypto values from $25 billion to $250 billion to $2.5 trillion” (currently $2.12 trillion) and accepted that he is “late” to the crypto party. He also pointed out that in this report he is only speaking for himself and not on behalf of his employer.

Below are some highlights from this report:

  • … there’s a ton of money pouring into crypto and blockchain investments
  • … crypto adoption is rising across investor types and regions. While institutional ownership has been low to-date, it is now growing. Bridgewater estimated that ~1 million Bitcoin (around 5% of total issued supply) are now held by institutional investors via custodial intermediaries
  • “Bitcoin’s volatility continues to be ridiculously high, and its volatility often rises when equity market volatility is rising too.”
  • “‘Prices fixed in Bitcoin’ means something different than ‘merchants who accept Bitcoin’. While the latter is rising, the merchant’s Bitcoin price simply adjusts to reflect the price of the goods or services in fiat currency terms, and most merchants quickly hedge their Bitcoin exposure. The only items that appear to be priced in Bitcoin or linked directly to it are….other cryptocurrencies.
  • … the use of stablecoins for cross-border remittances is negligible right now but seems set to rise (in countries that allow them) by those with bank accounts given frequently higher costs of traditional channels.
  • Stablecoins are often described as being backed by “reserve assets.” However, there are no standards regarding composition of stablecoin reserve assets, and information made publicly available is not consistent as to content or frequency.
  • Currently there’s around $100 billion “locked up” in DeFi activities. This refers to the amount of crypto collateral deposited in DeFi applications; this measure is imperfect due to double-counting and leverage.
  • One Achilles heel of the NFT market: just as Bitcoin ownership is highly concentrated, the same is true for the NFT art market. A study of the SuperRare NFT art platform revealed that just four collectors owned most of its works with only three degrees of separation between them and the 16,000 works of art they collected.
  • Goldman, JP Morgan, Morgan Stanley, State Street, US Bank and Fidelity are offering or exploring the ability to offer customers tools to trade cryptocurrencies, cash-settled futures and derivatives linked to them, and/or custodial services. Deutsche Bank is working on a trading and token issuance platform, and Susquehanna trades Bitcoin, Ether, Bitcoin Cash and Bitcoin futures its client base… The common denominator: very little principal risk in cryptocurrency, with the goal of profiting from increased adoption, trading, hedging and lending by their customers.
  • … blockchain adoption often has nothing to do with crypto valuations.

Near the end of the report, Cembalest mentioned some of the criticisms he had received from blockchain and crypto experts to whom he had shown a draft version of the report:

  • Not enough discussion of future income streams associated with crypto
  • This piece is the equivalent of judging the value of the internet in 1995
  • Remember the electricity wars of the 1800’s
  • Too US-centric
  • No discussion of generational wealth transfer and changing investment preferences
  • Not enough discussion about what the future might look like

And finally, this is the conclusion that the J.P. Morgan investment strategist came to at the end of his research:

I won’t be buying it even though part of me wants to, regardless of consequences, since that’s what some crypto holders have been counting on from the beginning. I would take another look if crypto valuations and the companies linked to them plummeted to deeply distressed values. But until then, the most widely discussed use cases and the valuations at which they’re trading are still the ‘stuff that dreams are made of’.


The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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