In recent months bitcoin has had a phenomenal rally and for good reason. Big payment giants and listed companies are adopting it and not just in the US. One month after Elon Musk announced that Tesla purchased $1.5 billion worth of bitcoin, the Chinese tech company Meitu announced that it made its entry to crypto, buying $40 million worth for bitcoin and Ethereum. On the other hand, the US government is printing money like it’s going out of style. A few days ago, the Senate voted for the new $1.9 trillion stimulus package. With the last one in April, lots of people used their check to buy bitcoin. Most likely, this will be the case when they get this new check too. So you can understand why big tech and Wall Street players are looking at bitcoin. As we all focus on bitcoin, its price and market cap, JPMorgan is looking a little to the left and to the right. They think bitcoin is a parenthesis and the true value lies in innovative products that will come out of tech companies. Analysts at the bank feel that cryptocurrencies are still plagued by a number of inherent problems that may prevent them from going mainstream. Now if you consider the power struggle we will see between the old and the new, central banks and open source crypto, we may see a slowdown. But crypto is not a parenthesis and anything moving fast at some point will have to catch its breadth. That’s only normal and expected. Bitcoin has ceased to be the play thing for a small group of early adopters, miners and believers in crypto and has become a legitimate alternative to inflationary measures. In the end bitcoin, defi and other cryptos will prevail and fiat will go go the way of the dinosaurs.
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After a drop, Bitcoin’s price has rebounded and is hovering around $50k. Bitcoin has surged more than 45% just in Feb. fuelled by a string of mainstream investors and companies, including Tesla, BNY Mellon and Mastercard. In a report to its clients, JPMogan said: “However, fintech innovation and increased demand for digital services are the real story of the coronavirus era, with the rise of online startups and the expansion of digital credit and payment platforms.”
In January, Jamie Dimon’s message to his management team was clear: Be frightened of fintech rivals: “Absolutely, we should be scared shitless about that. We have plenty of resources, a lot of very smart people. We’ve just got to get quicker, better, faster. As you look at what we’ve done, you’d say we’ve done a good job, but the other people have done a good job, too.”
This is not a new message. Back in 2015, Dimon wrote a letter to shareholders warning that “Silicon Valley is coming.” Fintech brings together two of the most powerful industries, technology and finance, as potential collaborators and competitors.
JPMorgan knows that competition will be brutal in the payments sector. So does BNY Mellon (“Innovation in Payments: The future is fintech”).
Already, big tech companies have shown increased interest in offering financial products to the customers. Apple launched its own credit card in partnership with Goldman Sachs, while Google allows its users to open a checking account through its partnership with Citigroup.
But fintechs can be any size. Non-bank payment providers have kick-started a surge in payments innovation. We are seeing more fintech startups becoming multi-billion dollar companies. There are at least 4,000 active fintech startups and more than a dozen are unicorns, valued at over $1 billion. While Google, Apple, Amazon, and Facebook, all have built payment systems and made other inroads into finance, the main drivers of fintech innovation have been the thousands of startups attracting billions of dollars in investment each year.
JPMorgan knows that these players will improve the payments experience, in terms of speed, convenience, efficiency and multi-channel accessibility, before they do. They also know that cryptocurrencies will unlock new fintech markets. But what JPMorgan doesn’t think will happen is that bitcoin will displace fiat currencies. That’s why “tech” is so high up on their agenda and “fin” is not. They think nothing is going to change when it comes to money.
But that’s where they are wrong.
Will digital currencies supersede traditional fiat currencies, as the way people exchange value in the world? Yes, I think that is likely. How this happens could take different paths. Let me explain.
Sure, some governments will borrow elements from blockchain and cryptocurrencies, but they will want retain control of the money that circulates in their economies. Some will succeed. By the end of the decade, we will have wallets that will resemble multi-currency accounts, but instead of holding accounts with commercial banks, we will be customers of central banks. Several of them, in fact. These wallets will also hold bitcoin and other crypto. In these wallets all central banks’ digital currencies will be interoperable. They will interact with one another and with cryptos, including bitcoin.
I think it is unlikely that all existing currencies will be replaced exclusively by bitcoin. We will use different coins and depending on how much we use them, they will vary in price and market size. Today we use different crypto for different things. For example people who value privacy use Monero, Zcash, Dash over bitcoin. In other use cases, think of tokens we use for smart contracts or decentralized exchanges.
Once fiat currencies are on blockchain, transacting between them will be much more seamless. Practically they will “disappear,” as long as you can convert from one to another, at fair rates. It will be just like I use my Revolut account to pay for things. I don’t really care which account is used, if its USD, EUR or bitcoin, as long as I have enough money in some account to pay for what ever I am buying and its converted at a fair rate. There will also be levels letting you turn off a wallet or prioritize the ones you use to pay for things, to make everything smarter. That’s how digital wallets will work. They will use our digital money to pay for things, essentially meshing money into one value, that takes a digital representation. So at the end of the day, we won’t really care If we are holding dollars, euros, yuans or bitcoins, because with digitization we will be able to use any asset we have for the things we want.
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