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Cryptocurrencies have always been hailed by many as the future alternative to banks and financial institutions. Their ability to remove the need for blind trust in intermediaries makes them very attractive for a possible replacement of the current financial system where any movement of assets is hindered by an unavoidable fence of hidden fees.
However, the world’s sixth largest bank JP Morgan reportedly said on Tuesday that the value of cryptocurrencies is unproven and their underlying technology, blockchain, is years away from making any real impact on the world’s banking and asset holding systems.
Blockchain technology has been widely praised for its security, cost efficiency, transparency and quick service all without any hidden costs or fees. However, it’s progress has been halted by the stories of fraud, theft, money laundering and other criminal activities carried outsourced through cryptocurrencies. As JP Morgan, other financial institutions have repeated this sort of skepticism previously as well. In their statement, JP Morgan said that the only scenario where widespread adoption of cryptocurrencies would become the norm is a dystopian one, where investors would lose all faith in gold, the dollar and other major reserve assets and the global payment systems. The report says, “Even in extreme scenarios such as a recession or financial crises, there are more liquid and less-complicated instruments for transacting, investing and hedging.”
Of course, the assessment deserves to be taken with a grain of salt as it could be underplaying the growth of cryptocurrencies and blockchain. After all, banks and financial institutions like JP Morgan are the ones that stand to gain the most by stopping this new technology from progressing further.
In the context of Bitcoin futures trading volumes, JP Morgan also pointed out that participation by financial institutions in crypto markets had decreased in the last six months. Individual investors are filling the void left by institutions. Moreover, they also commented on the cost/profit statistics of mining Bitcoin. The cost to create one Bitcoin averages around $4,060 globally in Q4 2018, while the current trading price of Bitcoin is $3,600, clearly distinguishing the loss of value.
An analyst with JP Morgan said, “The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners.”
Several factors to the crypto market that, if taken into account, might provide a more optimistic picture. The technology is still developing. Many big companies are adopting Blockchain across the world. It is only a matter of time before innovation in the market helps to improve these figures. The world wants to be freed from the shackles of the current hidden fees structure in banking. As a wise man once said, “Necessity is the mother of invention.”