JPMorgan Chase approves that Bitcoin is not a hedge against inflation! Investment Strategy Chairman: Made of Dreams

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Michael Cembalest, chairman of JPMorgan’s asset markets and investment strategy, released a 31-page report analyzing the current situation and current problems of cryptocurrencies. He quoted the 1941 film "The Malta Falcon" to describe Bitcoin and cryptocurrencies, saying Just like the treasures found by various factions in the plot were finally found to be fake, he also said that he would never buy cryptocurrency assets.

JPMorgan Chase released a cryptocurrency market report on the 3rd, written by Michael Cembalest, chairman of asset markets and investment strategy, with a content of 31 pages. In the report, Cembalest mentioned various cryptocurrency market problems, ranging from value storage, transaction medium He also came to a conclusion about his views on the cryptocurrency market: I will not buy it (Bitcoin), whether the outcome is good or bad, this is cryptocurrency What the holder wanted to see in the first place.

store of value theory

Cembalest mentioned in the report that during the epidemic, many people used Bitcoin as an asset class to hedge against inflation, and he also spent a lot of time refuting this view, explaining why Bitcoin is not a store of value and an inflation hedge, he mentioned. The price volatility of Bitcoin is too high, and it will not be able to avoid systemic risks as the market rises and falls. In terms of these two points, he believes that it is far inferior to gold, and in Cembalest's evaluation, he believes that gold is also Not a reliable inflation hedge.

“Bitcoin’s continued volatility is exaggeratedly high, and when stock market volatility is up, bitcoin’s volatility is up.”

Cembaalest also pointed out that cryptocurrencies such as Bitcoin, in addition to the systemic risks in the financial market, also have sources of volatility such as regulatory risks and hacker news reports, and Bitcoin is more concentrated in the hands of a small number of people than other financial assets, which makes The market is more likely to be operated by big players, and a large number of dumping and pull-ups lead to skyrocketing and plummeting. According to the report, within 6 months of 2018 alone, financial institutions discovered more than 355 dumping and dumping market events, compared with only about 142 events in the stock market in 11 years.

Payment currency and cross-border remittance

Despite the existence of a fiat country like El Salvador for Bitcoin, Cembalest observed that the main merchants in El Salvador that receive Bitcoin set the price of Bitcoin on goods based on the fiat currency of other countries, and he also criticized Bitcoin transaction costs as too high. High, the handling fee for a transaction may be higher than the buying and selling cost of trading used mobile phones in African countries. In addition to El Salvador, the proportion of real use of encryption or currency payment is also very small.

In terms of cross-border remittances, the report pointed out that in the past 10 years, less than 1% of cross-border remittances were completed through the cryptocurrency system, and he also mentioned the main problem of cross-border remittances: the recipient still needs the destination country's A bank account is required to convert cryptocurrencies into cash, which hinders the greatest source of cost savings.

He also mentioned that bitcoin transactions without bank accounts need to be exchanged for fiat currency through bitcoin ATMs, but the reality is that such machines are not widely established, and they are often charged a high handling fee (maybe as high as 5%).

Decentralized Finance

When it comes to Decentralized Finance (Defi), Cembalest admitted that the current traditional financial certificates are being gradually replaced by this new type of service, but when it comes to the connotation, he is still frustrated with the current situation of Defi products. The connotation of most Defi products is only for mortgage assets to provide loans. The borrowing is not used to buy more cryptocurrencies, or it is used to improve the liquidity of assets, etc., but he mentioned that all products cannot avoid the overall systemic risk.

“In either form, these services do not appear to be lending activities that will survive the cryptocurrency crash.”

Cembaalest also mentioned the blockchain P2P unsecured loan often mentioned by cryptographers. For this ideal product, he said good luck and reminded that China also conducted a large number of P2P crowd-lending startups in 2017. , and finally, the high default rate led to the collapse of a large number of Internet companies.

NFT

When it comes to the NFT market, Cembalest thinks it is very special, but he said that when he saw the NFT works of MadDogJones, Pak, and Beeple, he thought that these things did not deserve to be called art at all, but he was quite surprised that so many people bought them He believes that it is the consequence of the rapid rise of postmodern art in the 20th century.

"It may be because you don't appreciate the artistic value of NFTs such as BAYC, but that doesn't mean other young people won't."

But he mentioned that the NFT market is also highly concentrated. In the transactions from April to July 2021, he found that 17% of NFT collectors included 81% of NFT transactions, so he believes that high concentration and advertised can be profitable Sexuality has become a major issue in the current NFT market, resulting in today’s NFT market becoming a place where scams are rampant and where speculation is advocated.

Arguments and Rebuttals

Cembaalest also mentioned some criticisms of his idea in the cryptocurrency circle, such as some people think it is as search engine technology in 1995 when no one knew that it would be worth more than $1 trillion in the future; Speaking of the electricity wars of the 1800s, people at the time were dismissive, and Cembalest offered his take: The first phase of any innovation is architectural infrastructure, but the real worthwhile applications come later. During the Electric War of 1800, people greatly underestimated the potential of the future. Even Junius Spencer Morgan (the father of JPMorgan Chase) only said that electric light was a fashion and kerosene lamps were being used well.

Despite acknowledging that cryptocurrencies have potential, Cembalest still refuses to invest in cryptocurrencies, arguing that the real value is in blockchain technology, not cryptocurrencies themselves, concluding with a metaphor from the 1941 film The Falcon of Malta, he believes that cryptocurrency holders are exactly like those in the movie who pursue greedy treasures, only to find out that it is fake.

“I’ll try to see another way of understanding the troubling values ​​of those cryptocurrencies facing the plunge, but until then, I think (currency prices) are mostly dreams.”