JPMorgan: Crypto Passes First “Stress Test”

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  • JPMorgan has released a report praising the cryptocurrency markets for their performance during the coronavirus outbreak
  • Bank says that the sector passed its first “stress test”
  • Bitcoin fared better than other more established asset classes

JPMorgan claims that the cryptocurrency market passed its first “stress test” after recovering from its crash in early March, suggesting that it may be maturing. However, the bank also says that the asset class’s continued volatility means that cryptocurrencies should still be considered a “vehicle for speculation than medium of exchange or store of value.”

Bitcoin Rarely Dipped Below “Intrinsic” Value

JPMorgan made the claims in a new report entitled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?”, in which they analysed the performance of the nascent market during the global coronavirus downturn. Alongside almost all other markets, the crypto markets endured a torrid spell in March, selling off at a rapid rate, but the report praises the way in which they bounced back.

Even during the depths of the March drop, Bitcoin’s valuations didn’t diverge much from “intrinsic levels”, with its value only briefly dipping below mining costs, even at its lowest point.

JPMorgan Says Crypto Fared Better Than Other Asset Classes

The bank also says that there was “little evidence of run dynamics, or even material quality tiering among cryptocurrencies, even during the throws of the crisis in March.” This means that there were few signs of a flight to liquidity within the cryptocurrency asset class, where traders might rush toward more liquid parts of the crypto market in times of shock to the system. Instead, most cryptocurrencies fell at the same time as Bitcoin, a correlation that has risen over the past few months.

Interestingly, the report adds that Bitcoin’s market structure turned out to be more resilient than those of currencies, equities, Treasuries and gold, stating that although Bitcoin’s liquidity drops were among the most severe around the peak of the crisis, the disruption unwound itself much faster than other asset classes. This suggests that investors have more faith in cryptocurrencies than was previously assumed, which can only be good news for the space.