The hype surrounding cryptocurrencies and blockchain — the distributed ledger technology that underpins all cryptocurrencies — is a little overblown, with inroads to mainstream finance patchy at best, say analysts at JPMorgan Chase & Co.
While advocates tout that most assets can be shifted to a blockchain-type ledger and the technology will improve everything from transparency to supply chain efficiency, results are yet to match the industry buzz.
“Progress has been made to move blockchain adoption beyond experimentation and use in payments, but development has been largely confined to use cases like smart contracts, record keeping and decentralized applications rather than an institutionalized approach,” the analysts said.
Read: A team at Northwestern think they have solved one of bitcoin’s biggest problems
One sector ripe for a blockchain shake-up, according to crypto evangelists, is the banking system. Cross-border payments with faster transaction times and lower costs will propel digital currencies and blockchain technology into the established banking industry, but the analysts said a meaningful difference is years away.
“On blockchain, while there have been a number of developments that show that the technology can make a significant impact for banks, transformative real-world applications are still at the work-in-progress stage as they require legal and regulatory progress, operational [adaptability] and coordination between different stakeholders. Hence, we see wide-spread blockchain adoption with scalable solutions at least three to five years away.”
The cryptocurrency that started the entire movement was bitcoin,
the largest and still most famous digital currency. After reaching lofty values near $20,000 in the latter parts of 2017, the price of a single coin has tumbled more than 80%. While each steep fall is met with vehement calls of a bottom, the bear market could be far from over. According to the analysts, bitcoin’s cost support sits around $2,400—down from their estimate of $3,200 in February 2018—but as the bear market drags on this could fall below $1,260, they said.
Read: Here’s how much it costs to mine a single bitcoin in your country
Possibly more concerning for proponents of the nascent industry is the waning interest in trading, which could be indicative of a broader trend. “The declining volumes and open interest [of futures of the CME and Cboe exchanges] trends could indicate still lukewarm institutional interest in the cryptocurrency space,” they said.
Furthermore, a number of prominent companies that began accepting bitcoin have since thrown in the towel, which includes Dell, Expedia, OKCupid and Steam, JPMorgan noted.
Read: From barely a murmur to revived talk for a central-bank crypto — here’s the bitcoin buzz from Davos
But, it’s not all bleak. JPMorgan
does see blockchain providing significant steps in the trade finance sector. “It has seen significant progress with blockchain, in our view, as the technology potentially offers a path to increased digitalization for an industry that still partly depends on manual and paper-based processes,” they wrote.
“On the other hand, most other use cases, such as payments, are already largely digitalized, so we expect the adoption of blockchain may be viewed as providing incremental benefits.”
Providing critical information for the U.S. trading day. Subscribe to MarketWatch’s free Need to Know newsletter. Sign up here.