JPMorgan found Bitcoin and other crypto-assets have proven more resilient during the crisis than other asset classes. The report also classifies cryptocurrencies as risk assets rather than a store of value.
The COVID-crisis was the first real stress test for blockchain-assets. According to JPMorgan analysts, the new asset class has done well. A recent report entitled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?” says the asset class has proven its worth.
Crypto markets more resilient than other asset classes
The report compares the behavior of various cryptocurrencies with other asset classes during the stock market crash in March. While Bitcoin, like other asset classes, lost in value, the asset recovered much faster and had completely regained its pre-crisis value by the end of April. Other asset classes did not recover nearly as quickly.
Bitcoin did also not deviate significantly from its intrinsic value. “Bitcoin has rarely traded below the cost of production, including the very disorderly conditions that prevailed in March,” according to the analysts.
They also found that crypto-assets have not suffered more than other asset classes from the liquidity crisis. Quite the contrary, according to JP Morgan, crypto-markets were even more stable than fiat currencies, stocks, treasuries, or gold.
“There is little evidence of run dynamics, or even material quality tiering among cryptocurrencies, even during the throws of the crisis in March,” says the report.
Today, Bitcoin market depth is above its 1-year trailing average, while liquidity in more traditional asset classes has yet to recover.
JPMorgan categorizes cryptocurrencies as risk assets
The analysts conclude that cryptocurrencies have proven their worth an asset class during the crisis. In an investment portfolio, however, they would be more useful as a speculative asset than as a long-term store of value. This contradicts the argument that cryptocurrencies are a safe haven and Bitcoin the “digital gold.”
The analysts found that Bitcoin was strongly correlated with risk assets such as stocks in recent months.
“Though correlations were modest and mostly mean-reverting around zero for much of the past couple of years, in recent months they have moved sharply higher in some cases (equities) and lower in others (U.S. dollar, gold). […] That suggests that cryptocurrencies have traded more in line with risk assets since early March.”
On the contrary, Stablecoins like USDT or USDC were able to maintain their backing during the crisis, thus proving their main value proposition.
“These tokens were relatively well-behaved—though daily volatility is much higher than one would want from a truly managed exchange rate, it did not rise appreciably either in March. In that sense, their backing held through the most acute phases of the crisis,” according to the analysts.
JPMorgan’s crisis review was overall positive for crypto-assets. The analysts also disagree with a client call by competitor Goldman Sachs two weeks ago, that did not recommend investing in Blockchain Assets. So even though Wall Street does not have a unanimous view on the asset class, the idea that blockchain-assets should play a more significant role in investment portfolios is gaining momentum in banking towers.