J.P. Morgan: Bitcoin selloff could lead to further price dips
Price could dive below US$5,000 but bitcoin's unlikely to die, analysis says.
J.P. Morgan has not been a fan of cryptocurrencies. Its CEO at one point declared bitcoin to be a fraud, saying "If you're stupid enough to buy it, you'll pay the price someday". The bank subsequently changed its tune, saying cryptocurrencies "are unlikely to disappear completely and could easily survive in varying forms and shapes among players who desire greater decentralization, peer-to-peer networks and anonymity, even as the latter is under threat".
But right now, the bank is saying prices for bitcoin could fall to around the US$4,600 mark, well down from almost US$20,000 late last year.
J.P. Morgan has released what many are calling its "bitcoin bible" – a 71-page report titled "J.P. Morgan Perspectives - Decrypting Cryptocurrencies: Technology, Applications and Challenges". In it, the firm suggests that cryptocurrencies will find it hard to take a dominant role:
It will be extremely hard for CCs [cryptocurrencies] to displace and compete with government-issued currencies, as dollars to euros and yuan are virtual natural monopolies in their regions and will not easily give up their seigniorage profits.
That remains one of the big challenges for cryptocurrencies. Government-issued fiat currencies have an air of legitimacy that cryptocurrencies have yet to achieve in the mainstream. And, given some of the failed ICOs that have taken place, and general concern in the broader community around cybersecurity, J.P. Morgan says there are security concerns with the infiltration by hackers of some exchanges and the use of cryptocurrencies by criminals.
Those uncertainties, and the volatile nature of coin values in nascent markets, are behind the investment bank's analysis that bitcoin could fall to as low as US$4,605 – a big drop on the current price.
A look at the price of bitcoin over the last few weeks shows the price does fluctuate substantially but that it's in an overall downward trend, as a chart from the report illustrates.
The core opportunities for cryptocurrencies that will drive its ongoing value are "where current payments systems are slow, such as across borders, as payment, reward tokens or funding systems for other Blockchain innovations and the Internet of Things, as well as parts of the underground economy," the bank said in the guide.
So, while J.P. Morgan's CEO might be sceptical, the analysis conducted by his staff reveals a more measured response. Fiat currencies are unlikely to disappear any time soon and cryptocurrencies, while losing market value, may become an important instrument in specific niches.