The report, entitled “Decrypting Cryptocurrencies: Technology, Applications and Challenges” and dated Feb. 9, was drafted by the bank’s Global Research unit. A copy obtained by CoinDesk explores a range of subjects related to cryptocurrency and blockchain, notably exploring the implications for investors, financial firms and central banks, among others.
Perhaps the most notable part of the report is that it – albeit cautiously – predicts that cryptocurrencies might one day play a role in the diversification of global bond and equity portfolios. The report states:
“If past returns, volatilities and correlations persist, [cryptocurrencies] could potentially have a role in diversifying one’s global bond and equity portfolio. But in our view, that is a big if given the astronomic returns and volatilities of the past few years.”
“If [cryptocurrencies] survive the next few years and remain part of the global market, then they will likely have exited their current speculative phase and would then have more normal returns, volatilities (both much lower) and correlations (more like that of other zero-return assets such as gold and JPY),” the authors continue.
That sentiment perhaps stands in contrast with comments from the bank’s chairman, president and CEO, Jamie Dimon, who last year issued his now-infamous remark that bitcoin is a “fraud.” As posited by the report’s authors, cryptocurrencies are “unlikely to disappear completely.”
“[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,” they wrote.
Looking past the investment picture, the bank’s report looks at the wider question of blockchain use, particularly by private firms who would maintain their own gated or “permissioned” blockchains.
The authors write that blockchain is a “superior database,” and that despite concerns from regulators, the tech itself is potentially “regulation friendly.” […]