JP Morgan Research: Blockchain Mainstream Years Away, Libra's Hurdles and Bitcoin Hedging

JP Morgan has been one of the earliest advocates and adopters of blockchain technology among the major financial institutions and continues to lead many other enterprises in the space. However, a new report by the American institution indicates that while the infrastructure for a digital economy is being developed globally, mainstream adoption is unlikely for at least a few years.

The report published on Feb. 21 by JP Morgan gives the firms perspective on the current state of adoption and highlights the challenges faced by banks, stablecoins, and trade finance.

Banks still three years away from blockchain

According to the report, while financial institutions have made a substantial investment in blockchain initiatives throughout 2019, they have yet to record any tangible cost benefits. Distributed ledger technology (DLT) solutions are still expected to continue receiving heavy investment in the medium-term.

JP Morgan highlights the “Trade Finance Blockchain” solutions being developed as the most incremental efficiencies in the banking sector, specifically with digital payments and KYC regulation.

The paper suggests that the wide-spread implementation of blockchain solutions is still at least three to five years away and faces challenges like, “the macro-economic environment, legal and regulatory frameworks” and technical challenges with blockchain interoperability.

Stablecoins and Libra

The report by JP Morgan discusses research on the scalability of Facebook’s Libra and other stablecoins, particularly those backed by assets. While the researchers believe the world is ready for private money, they predict stablecoins are likely to face hurdles regarding the need for intraday liquidity and will face heavy regulatory oversight.

The researchers also argue that less distribution of the network will be required as DLT protocols are very energy-intensive. The paper reads, “For a stablecoin like Libra to succeed, it will likely require short-term liquidity facilities, a source of positive-yielding reserve assets, and less distributed, semi-private networks.”

Bitcoin investment

JP Morgan’s report is positive about the maturity being exhibited in the cryptocurrency market and reflects on the increasing institutional participation and the introduction of new products on regulated exchanges.

Despite recent reports by player’s like Van Eck on the value of Bitcoin as an investment option, JP Morgan’s researchers point out the extreme price volatility. The reports do highlight that the researchers believe in the intrinsic value of Bitcoin but believe it has not yet displayed value in terms of portfolio diversification or as a hedging instrument.

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