JPMorgan says crypto crash's impact on mainstream markets is 'limited'

·Contributor
·3 min read
UKRAINE - 2021/05/23: In this photo illustration a Bitcoin (BTC) cryptocurrency logo is seen on a smartphone and a pc screen. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
The recent volatility shaved billions off the wider crypto world's value after deep correction hit the market earlier in the week. The global crypto market lost 9% in just 24 hours, according to data provider CoinMarket. Photo: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images

JP Morgan (JPM) has shrugged off the latest cryptocurrency crash, saying that its impact on mainstream markets is “limited”.

The Wall Street bank said in a note that the recent 40% drawdown is the third to occur in four years, but this time it happened in a $2tn (£1.4tn) asset class.

Over last weekend alone Bitcoin (BTC-USD) dipped as much as 14.5% to $33,038 (£23,347) while other currencies followed a similar trajectory. Ethereum (ETH-USD), the world's second largest crypto, crashed 23% to trade at $1,901, and Elon Musk favourite dogecoin (DOGE-USD) fell as much as 20% to $0.28 during the session.

The recent volatility shaved billions off the wider crypto world's value after deep correction hit the market earlier in the week. The global crypto market lost 9% in just 24 hours, according to data provider CoinMarket.

Despite the move lower, JP Morgan argued that it was not yet in the same category as the Nikkei (^N225) in the 1980s, the dot-com stocks in the nineties, or the subprime mortgage crash in the 2000s “in terms of household/corporate leverage and financial sector infestation.”

“The cross-asset consequences have been mild, with less equity/credit drawdown than occurred during January’s meme-stock frenzy of February’s sell-off in bonds,” it said. “Huge wealth losses are always possible, but not necessarily systemic."

The bank went on to say that if these were penny stocks, the recent volatility, which has seen intraday peak-to-trough moves of 30% to 40% on some coins, might be more spectacle than systemically material.

But these are no longer small markets, JPMorgan added.

The five largest cryptos have market caps of $50-$700bn each even after the past month's decline. This makes each of them more valuable than about 70% of the companies in the S&P 500 (^GSPC).

Read more: Cryptos rise as Goldman Sachs says its new asset class

Earlier this year, reports revealed that JP Morgan is looking to roll out a bitcoin fund to certain clients as early as this summer.

The fund will be available to JP Morgan’s private wealth clients and will be actively managed in contrast to passive funds such as those offered by other participants such as Galaxy Digital and Pantera Capital, Coindesk said.

It follows a number of financial institutions and well known investors who have thrown their weight behind crypto and blockchain technologies.

Citigroup (C) was reported to also be weighing the option of providing cryptocurrency-related services after a surge in interest from its clients.

The bank has not yet decided if it will offer clients these services, but trading, custody, and financing are all under consideration, the Financial Times said last week, citing Itay Tuchman, the bank's global head of foreign exchange.

Read more: How bad is bitcoin for the environment?

It comes as HSBC’S (HSBA.L) boss told Reuters on Monday that the bank has no plans to launch its own crypto trading desk, or offer digital coins as an investment to customers due to their volatility and lack of transparency.

"Given the volatility we are not into Bitcoin as an asset class, if our clients want to be there then of course they are, but we are not promoting it as an asset class within our wealth management business," Noel Quinn said.

"For similar reasons we're not rushing into stablecoins," he said, referring to the digital currencies that seek to avoid the volatility associated with cryptocurrencies by pegging their value to assets such as the US dollar.”

Watch: What are the risks of investing in cryptocurrency?

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