JPMorgan’s chairman of investment strategy said he was late to recognize the scale of growth in the cryptocurrency space and is now embarking on a deep exploratory dive.
In a far-reaching newsletter, Michael Cembalest discuss topics such as Bitcoin (BTC) as a store of value, decentralized finance (DeFi), stablecoins and non-fungible tokens (NFTs).
The JPMorgan chairman also explains how blockchain adoption can be separate from cryptocurrency valuations.
While stating for the record that he speaks for himself and not for JPMorgan, the analyst says,
“I had not anticipated the increase in crypto values from $25 billion to $250 billion to $2.5 trillion (and now $1.5 trillion), and I admit that I am late.
There is a ton of money flowing into crypto and blockchain investments. Venture capitalist [VCs] have been pouring money into crypto at an accelerating rate, rivaling other innovation categories.
Cembalest notes where VCs put their money:
“[Around] 40% in trading, investing and lending activities; ~20% in Web 3.0 applications and NFTs; ~10% in ownership; and the rest in various businesses focused on compliance, mining, and data security.
When it comes to crypto adoption, the investment strategist says institutional portfolios are gaining more and more exposure.
“Crypto adoption is growing across all types of investors and across all regions. Although institutional ownership has been low so far, it is growing.
Bridgewater [Associates] estimated that around 1 million Bitcoin (around 5% of the total issued supply) is now held by institutional investors through custodian intermediaries.
Beyond blockchain seen as an investment vehicle or source of innovation, Cembalest cites people’s desire to have a store of value to protect against monetary inflation.
“I understand why people are interested in cryptocurrencies with a fixed supply as a store of value. The developed world has been drowning in debt and fiat currency, and at a rate that eclipses anything it has seen in the wake of the 2008 financial crisis.
Central banks and treasuries have created a huge vacuum of confidence, and it would have been odd if an alternative to fiat money hadn’t appeared on the scene.
I accept the idea that a digital store of value might exist… Bitcoin is beginning to capture a larger subset of store of value investments relative to the value of gold, [although] Bitcoin volatility continues to be ridiculously high…”
The JPMorgan analyst concludes his in-depth analysis by saying that he still does not consider investing in cryptocurrencies unless a big selloff presents advantageous entry prices.
“I won’t buy it even if a part of me wants…
I would take another look if the valuations of crypto and related companies fell to deeply distressed values.
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