JPMorgan, Goldman Sachs, and Digital Currencies: A Love-Hate Thing

The global lockdown has rapidly made our reality semi-digital. Events, education, workouts, you name it. However, finance has been disrupted by digitisation way before the pandemic began, with decentralised finance opposing itself to the traditional financial system, and the latter recognising and adopting so many features of the first.

Over the last week, major traditional financial establishments were so into digital currencies.

The world of crypto was shaken when slides for Goldman Sachs’ presentation related to Bitcoin leaked on social media networks. 

The presentation was titled «US Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin.» One slide offered the searing perspective that cryptocurrencies like Bitcoin are not even an asset class in the first place, and that they offer neither cash flow nor a hedge against inflation: 

«We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients.»

Another slide suggested the other most notable feature of cryptocurrency is as a “conduit for illegal activity,” including Ponzi schemes and ransomware, while another invoked the Dutch tulip mania. 

Responding to such perception of the most famous blockchain application, Bitcoin proponents were ultimately engaged in a massive social media melodrama, with Tyler Winklevoss reminding on Twitter about Goldman Sachs facilitating «$6 billion in money laundering via 1MDB scandal between 2012-13.»

JPMorgan says the dollar should be aware
In the latest report by JPMorgan, dedicated to central bank digital currencies, the analysts did put big transformative power of CBDCs into doubt, but dropped a clear hint that the US market and the dollar hegemony are likely to be put at risk.

“There is no country with more to lose from the disruptive potential of digital currency than the United States,” the report stated. “This revolves primarily around U.S. dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services conveys immense advantages.”

And while the dollar is unlikely to be displaced from the throne anytime soon, but the “fragile” aspects of the currency’s dominance may be eroded, including trade finance and the SWIFT messaging system. If other countries were able to circumvent the SWIFT system and the dollar’s domination, it would be much more difficult for the U.S. to carry out its goals in sanctions and terrorist-financing enforcement, the report said.

Back in February 2019, JPMorgan Chase & Co. has officially become the first U.S. bank to launch a digital token representing a fiat currency. The JPM Coin, backed one for one by JP Morgan bank account balances, was introduced to enable enterprises to settle blockchain transactions instantly. The BIS has classified it as a “wholesale stablecoin.”