JPMorgan: Lessons Learned From the Crypto Crash

Despite the recent crash in cryptocurrency markets, the technology behind stablecoins – a type of cryptocurrency whose value is pegged to another asset, such as the U.S. dollar or gold – will continue to play an important part in the evolution of the monetary system, JPMorgan (JPM) said in a research report Thursday.

The technologies, tokenization of securities and assets, smart contracts and cryptography, will “transform the future of financial systems,” the report said.

As with any new development, “the challenge is to find the right balance between fostering innovation and maintaining financial stability and protection for consumers and investors,” JPMorgan said. The roles of the public and private sector still need to be clearly defined, according to the note.

Policymakers will need to address financial stability risks by improving investor and consumer protection, and by enhancing know-your-customer (KYC) and “identity issue regulation” to stop money laundering and terrorist financing.

“A blue sky regulatory framework is hard to achieve in light of political and technological realities,” the note said. The recent crypto market crash highlights the risks originating from such regulatory shortcomings, it added.

An investor survey conducted by the bank showed that 28% of respondents said crypto would be the worst-performing asset class in 2023, and that 74% expected the bitcoin (BTC) price to be below $25,000 in six months. Since mid-June bitcoin has mainly been trading between $25,000 and $18,000.

Read more: Crypto Venture Capital Investment Slowed Further in October: JPMorgan