Admirers of Blockchain on Wall Street announce that technology is transforming the financial industry and claim that it challenges established payment processing institutions.
Millions of dollars have been invested in blockchain firms by venture capital funds. And a flurry of tech companies such as Facebook, Accenture and IBM hire lots of blockchain professionals. But a new JPMorgan report on Thursday deters the enthusiasm.
The report says “Blockchain is unlikely to re-invent the global payments system, but instead can provide marginal improvements to various parts of the process.”
JPMorgan is the most recent investment banking giant to express pessimism that the technology–which governs cryptocurrencies–will soon be able to completely overhaul the global financial system. President of the European Central Bank, Mario Draghi, CEO of the second largest bank in Spain, BBVA, and consultancy firm McKinsey & Co., has opined that blockchain is a budding technology, which requires further development to revolutionize the world economy.
JPMorgan outlined two specific reasons for not buying the hype. Firstly, the prevailing payment system is already very much digitized. Secondly, a blockchain-backed payment system still remains strained by the legal and regulatory constraints.
JPMorgan said “Blockchain solutions making a meaningful difference for banks are at least three to five years away.”
On the flip side, the bank thinks that blockchain’s true prospects lies in its ability to simplify and mechanize complex and expensive banking procedures—for example, the report mentions that trade finance, which involves monetary dealings that facilitate local and global trade, will benefit the maximum. The report values the industry to be worth about $2 billion and accounts for 15% of world trade.
In case of cryptos, JPMorgan raises doubt regarding their value as an asset class in order to expand portfolios and counter market volatility. Along with the free fall of Bitcoin, the crypto market lost 85% of its peak value in 2018. In the current downward trend, the involvement of financial institutions has faded, allowing retail investors and small investment first to dominate trading and price identification mechanism in market, the report says.
In addition, the report pointed out that asset managers are yet to receive regulatory approval to roll out the most anticipated Bitcoin ETF, which is broadly perceived as the path for institutional investors to enter the cryptocurrency market. The Security Exchange Commission has often spoken about its worries about the potential for fraud and price manipulation in cryptocurrency business due to its comparatively small market size.
The report further stated “Cryptocurrencies’ value as diversification remains unproven in most environments other than a dystopian one, marked by loss of faith in all major currencies and the payments system.”