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February 25, 2020

Trade Finance – The Big Blockchain Winner…..in 3 to 5 years

JP Morgan has released a new report in which it reviews the evolution of blockchain, the rise of alternative payments and whether stablecoins are an alternative to cryptocurrencies.

The main finding was that blockchain had the most potential to deliver efficicncy gains in the huge Trade Finance market (particularly Documentary Trade and Trade Finance), but this continues to evolve, with widespread adoption still three to five years away.

It’s a 74-page document, so a summary –

 

Blockchain evolution: Moving into the mainstream?

– Trade Finance and Payments blockchain solutions offer the most incremental efficiencies in the banking sector relative to other use cases.

– There is long-term potential for DLT to transform banks’ business models by providing efficient and resilient information transfer and storage once scale has been achieved…

– …but legal and regulatory frameworks and technical challenges, such as cross-platform integration, may decelerate further progress.

– There is a need for verification of the information going into a blockchain; quantum computing raises security questions and poses risks around blockchain’s ability to provide an immutable record.

 

The rise of alternative payments

– Asia represents the bulk of global growth in payments, driven in large part by the explosion in third-party (non- bank) and mobile providers, with the most rapid growth in China and India.

– Cashless economies work and increase financial inclusion with the example of China suggesting that the transition to a mostly cashless economy can be managed at scale…

– …but the rapid rise of payments-related Money Market Funds in China poses financial stability risks, and high-speed change requires an equally adaptive regulatory response.

 

Are stablecoins a scalable alternative to cryptocurrencies?

– The crypto market continues to mature with the increased participation by financial institutions and the introduction of new contracts on regulated exchanges.

– Bitcoin and other freely floating cryptocurrencies continue to exhibit extreme volatility relative to fiat currencies, which has led focus towards stablecoins to minimize price fluctuations.

– Private stablecoins are likely to face technical hurdles, including the need for intraday liquidity.

– Bitcoin prices have corrected much of the gap versus intrinsic value but have yet to demonstrate their value for portfolio diversification.

 

To read the complete review –  https://markets.jpmorgan.com/research/open/url/t59R6MoBP2TUkWA_itSQBbfUlco1CmYnoNL3dA6WVSm82drJuOYLvdZIqDyuXyp-L4OrVEFw_eAu4UgzicsInqAwjcbKIQHiPfGEjPF2Rt5PKUltFmEKGQaC3DeLBoW7?action=print

 


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