According to JPMorgan, fintech, not bitcoin, is the real Covid-19 story. The bank said bitcoin is an "economic side show" and fintech innovation is the story that will dominate financial services.
Analysts at the bank believe bitcoin is still beset by a number of issues that might prevent it from becoming a mainstream asset, despite the cryptocurrency's monster rally.
In a research note last week, JPMorgan said: “Bitcoin prices have continued their meteoric rise with Tesla, BNY Mellon and Mastercard's announcements of greater acceptance of cryptocurrencies. But fintech innovation and increased demand for digital services are the real Covid-19 story with the rise of online start-ups and expansion of digital platforms into credit and payments.”
Bitcoin has gained traction with major Wall Street banks and Fortune 500 companies, a development which has boosted its price and saw it hit $1 trillion in market value last week.
Investors have drawn comparisons between bitcoin and gold, viewing bitcoin as a new digital store of value thanks to its limited supply — the total number of bitcoins that will ever exist is capped at 21 million.
Strategists at JPMorgan predict bitcoin could rally as high as $146,000 as it competes with gold as a potential hedge against inflation in the coronavirus crises. They also said that the current bitcoin prices appear to be "unsustainable", unless the cryptocurrency becomes less volatile. According to them, their $146,000 target hinges on bitcoin's volatility "converging to that of gold," which would likely take years to happen.
However, there are still skeptics that remain unconvinced. For instance, economists like Nouriel Roubini say bitcoin and other cryptocurrencies have no intrinsic value. Furthermore, a recent Deutsche Bank survey said investors view bitcoin as the most extreme bubble in financial markets.
The rise of digital finance and demand for fintech alternatives is the “real financial transformation story of the Covid-19 era,” according to JPMorgan.
The bank said that “Competition between banks and fintech is intensifying, with Big Tech possessing the most potent digital platforms due to their access to customer data.”
″‘Co-opetition’ between ‘Fin’ and ‘Tech’ players lies ahead, with banks stepping up investment to narrow the technology gap, and the battle between US banks and non-bank fintech is also playing out on the regulatory front.”
Digital banking has boomed in the coronavirus era, with large lenders and fintechs alike seeing a surge in adoption as people are spending more time at home due to public health restrictions.
Furthermore, major tech companies have shown increased interest lately in financial services. Apple, for instance, has launched its own credit card in partnership with Goldman Sachs. Then there is Google letting its users open checking accounts following a tie-up with Citigroup.
“Traditional banks could emerge as endgame winners in the digital age of banking due to their advantage from deposit franchise, risk management and regulation,” JPMorgan said.
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