It may make sense for some investors to include digital currencies in their portfolios as a hedge, the bank said in a wide-ranging note to clients. The bank added, however, that it doesn't view any cryptocurrency as a “legitimate competitor” to sovereign currencies.
“The huge volatility of the price of cryptocurrencies - with respect to either traditional currencies or to a basket of goods and services - has made use of cryptocurrencies as a unit of account impractical,” it said. “Only hobbyists are using cryptocurrencies as a medium of exchange, at least for conventional transactions for goods and services.”
JPMorgan added that even if cryptocurrencies were to meet the criteria of cash, they still would have a very difficult time giving a national currency a run for its money because of the network effect of fiat.
“At any rate, even a hypothetically stable-value cryptocurrency is unlikely to compete with the dollar for transactions in goods and services, in say, Chicago, or to compete with the euro in Stuttgart.
“Economists have long viewed successful (i.e. relatively price-stable) currencies as natural monopolies in a given geographic area. This particular natural monopoly arises as a result of the inherent network externalities: pricing a New York meal in yen makes little sense, as almost all customers will be holding dollars,” said JPMorgan.
According to the Wall Street bank, the only area where cryptocurrencies could compete with national currencies as a medium of exchange is in the black market.
CEO of JPMorgan Jamie Dimon, who once denounced bitcoin as a fraud that was bound to fail, said last month he regrets the comment, but remains uninterested in digital currencies.
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