A new report by JPMorgan reveals that the market structure of Bitcoin is more resilient than that of currencies, gold, treasuries, and stocks.
Bitcoin Market Structure Resilience is High
JPMorgan, a leading global financial services firm, was one of the most dominant financial institutions to criticize Bitcoin in its early days. However, over the past few years, JPMorgan Chase has changed its tune and now also offers some Bitcoin services to its customers.
The strategists at JPMorgan have now come out to state that the market structure of Bitcoin is more resilient to harsh market realities compared to gold, currencies, treasuries, and equities. In their report, called the Bitcoin Stress Test, the strategists analyzed Bitcoin and confirmed that it has longevity in the same way as an asset. They also stated that Bitcoin is looking more positive. This is the conclusion of the researchers led by Joshua Younger, the head of the U.S. interest rate derivatives strategy, and Nikolaos Panigirtzoglou, a cross-asset research analyst.
The report looked at Bitcoin, other cryptocurrencies, and other financial assets as they suffered massive losses in March due to the coronavirus outbreak in the U.S and most parts of the world, leading to shutdowns that crippled the economy. When the BTC price crashed below the $4,000 mark, it bounced back faster than most other assets and recouped most of its lost value within a month. Furthermore, the valuation of Bitcoin did not diverge much from the intrinsic levels experienced during the March panic.
The strategists highlighted that Bitcoin had rarely traded below its cost of production, even during the disorderly conditions that occurred in March. However, the strategists added that the price action of the cryptocurrency points to the fact that it is used more as a vehicle for speculation rather than a medium of exchange or store of value. As such, Bitcoin is regarded more like riskier assets, such as stocks.
No Liquidity Flight Amongst Cryptos
The report added that there were a few signs that show a flight of liquidity within the cryptocurrency market, even as most of the crypto assets massively underperformed in March. After concluding that Bitcoin weathered its stress test, the strategists looked into liquidity as it directly relates to volatility. When an order book is thin, transactions could lead to a more substantial change in the price of an asset and vice versa. Although Bitcoin experienced one of the most severe falls in liquidity during the March crisis, the disruption unravelled itself faster than any other asset.
They wrote that “The coin’s market structure turned out to be more resilient than those of currencies, equities, Treasuries and gold.”
JPMorgan has evidently become one of the vocal supporters of Bitcoin and other cryptocurrencies as an asset class. In December 2017, CEO Jamie Dimon tagged Bitcoin as a fraud. However, he admitted that he was wrong for calling Bitcoin a fraud a few months later. The bank has gone on to provide banking services to cryptocurrency companies, while it also launched its digital currency called JPM coin for conducting transactions. Overall, the views of the bank and its CEO regarding Bitcoin has changed over the past three years which is a clear indication of the big potential of this top cryptocurrency.