A report by Standard Chartered bank says markets are underpricing a sharp drop in Bitcoin, but blockchain-based digital assets seem unlikely to disappear.
A note from British financial services company Standard Chartered outlined several “surprise” scenarios it says that markets are currently “under-pricing.” They include a roughly 70% drop in Bitcoin’s value to $5,000, according to Global Head of Research Eric Robertsen.
Bitcoin Surprise Price Scenario
The biggest cryptocurrency is already down 63% year-to-date from a record high of $69,000 in Nov. last year. The note remarks that, “while the Bitcoin sell-off decelerates, the damage has been done.”
The decline in prices triggered successive insolvency crises among crypto firms, which further deteriorated investor confidence in the sector. This vicious cycle led to Bitcoin’s price continuing to fall, as the contagion spread and more companies went bankrupt.
Although underpriced by the market, the note still characterizes this as a “surprise” scenario. For one, it says this would involve a reversal of the Federal Reserve’s aggressive monetary policy tightening.
While recent remarks from the Fed indicate it may slow its interest rate hikes, it is still likely to continue. Robertson described these as “surprise” scenarios because they “fall materially outside the market consensus or our own baseline views.”
Blockchain-Based Assets Here to Stay
In addition to Standard Chartered describing Bitcoin’s fall as unlikely, there are other indicators that blockchain-based digital assets have long-term viability. Ironically, they may have been supported by the recent collapse of crypto exchange FTX and the ensuing regulatory scrutiny.
JPMorgan said as much in a recent market report, describing expedited regulatory attention as the “silver lining” to the incident. Highlighting swift regulations following the global financial crisis in 2008, the report said the FTX collapse would trigger something similar. Once this occurred, clarity from the reform would inspire more financial institutions to adopt blockchain technology.
Others also shared this perspective about more mainstream adoption of crypto assets in the wake of comprehensive reform. MicroStrategy founder and Bitcoin enthusiast Michael Saylor said more regulation following the FTX collapse would help the industry “grow up.”
Meanwhile, the Bank of England also lauded the potential of blockchain-based financial innovations. However, it said more comprehensive regulation would be necessary before this could be achieved.
In fact, JPMorgan is so confident in the adoption of blockchain-based technology, it has established a devoted division called “Onyx.” Recently, the investment bank initiated its first decentralized finance transaction in partnership with the Monetary Authority of Singapore.
Rival investment bank Goldman Sachs has also been scooping up crypto firms at a discount in the wake of the FTX collapse.
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