JPMorgan Says The Real Threat To Bitcoin Isn’t Strategy (MSTR) — It’s Private Blockchains

JPMorgan analysts have raised concerns about the future of bitcoin, suggesting that the real threat to the cryptocurrency lies in the adoption of blockchain technology that bypasses public networks and the tokens associated with them. While Strategy’s recent bitcoin sales have caused some unease among investors, the analysts believe that the shift towards permissioned blockchains could have a more significant impact on the crypto ecosystem in the long run.

The recent sale of 3,588 bitcoin by Strategy for $216 million to cover preferred dividends has highlighted the potential selling pressure that large disposals can create. However, the analysts at JPMorgan are more concerned about where tokenization, payments, and settlement processes will ultimately gravitate towards. If these activities move towards permissioned blockchains instead of public chains, it could result in a structural de-rating of the crypto market, leading to thinner liquidity, weaker capital flows, and slower on-chain volume.

Institutions have shown a preference for permissioned blockchains due to the privacy, regulatory compliance, governance, and legal certainty they offer. This trend poses a competitive challenge for public networks like Ethereum, which may struggle to attract users and maintain liquidity in the face of growing interest in permissioned blockchains.

The analysts point to the Bank for International Settlements’ stance on public permissionless chains, advocating for the use of “unified ledgers” that house tokenized central bank money, bank deposits, and assets within regulated frameworks. This shift towards regulated tokenization could potentially overshadow stablecoins in institutional payments and reshape the landscape of the crypto market.

As banks continue to explore tokenization of real-world assets and deposits, the analysts foresee a potential migration of issuance, custody, and settlement processes to private infrastructure. Public chains like Ethereum may then be left to focus on distribution and interoperability, rather than serving as the primary platform for financial transactions.

Despite these concerns, the analysts acknowledge that their thesis could be challenged by a hybrid model where both permissioned and public chains coexist, increased adoption of stablecoins under favorable regulations, or the resilience of bitcoin as a digital store of value and hedge against currency devaluation. The future of the crypto market remains uncertain, with various factors influencing its trajectory in the coming years.

Overall, JPMorgan’s analysis underscores the evolving dynamics of the blockchain and cryptocurrency space, highlighting the need for industry participants to adapt to changing trends and regulatory frameworks to stay competitive in the evolving landscape.