People invest in bitcoin because the developed world has drowned in debt and fiat money, says Michael Cembalest, JP Morgan Asset & Wealth Management’s chairman of market and investment strategy. He highlighted that Central Banks and Treasuries have created a massive confidence void. Cembalest in a report – The Maltese Falcon: On Cryptocurrencies and blockchains – said it would have been strange if some alternative to fiat money hadn’t been there.
The report says people use the popular crypto as a digital equivalent to gold. Cembalest believes bitcoin’s volatility continues to high and it often rises when the equity market instability is rising. The volatility could be a derivation of bitcoin concentration. The report highlighted that about 2%of BTC holders own around 72% of its value. Cembalest says this is even worse than the concentration of US household wealth.
The JP Morgan report points out that crypto has managed to hold about 1% of remittances. Over the last decade, the crypto market has been ranging from $500 billion to $600 billion per year. It says potential savings are hampered as recipients need bank accounts in the destination country to be able to convert the crypto to cash. Cembalest said off-ramp costs from crypto to fiat for people with bank accounts are equal to the cost of converting from dollar-based stablecoins to local currency. He believes the disintegration of banks and financial services is ongoing. And this is attributed to the rise of fintech platforms. It makes a withering assessment of how transactions are processed on decentralized finance (DeFi) platforms.
The report says most DeFi lending is over-collateralized crypto loans to other crypto holders. So the latter can purchase more crypto or obtain liquidity against appreciated crypto holdings, that is, without incurring capital gains taxes. Cembalest believes crypto collateral may not be dedicated. As such, it is assigned solely to the activity against which it is posted. The report said crypto collateral can be rehypothecated to support multiple activities.