JPMorgan says Facebook's Libra has Potential to Grow Substantially

Analysts at U.S. financial services giant JPMorgan Chase (reportedly) said, in a note to clients on Thursday (September 5), that stablecoins "have the potential to grow substantially" but there is the risk of "payment system gridlock

JPMorgan says Facebook's Libra has Potential to Grow Substantially

Analysts at U.S. financial services giant JPMorgan Chase (reportedly) said, in a note to clients on Thursday (September 5), that stablecoins "have the potential to grow substantially" but there is the risk of "payment system gridlock, particularly during periods of stress." They also had special concerns regarding Libra.

According to a report in Bloomberg published on 5 September 2019, the JPMorgan analysts said that although the total reported market cap for all stablecoins is under $5 billion, these low-volatility altcoins are destined for fast growth, especially Libra, Facebook's proposed cryptocurrency. However, the analysts warned that there is the risk that they might grow too fast and get subjected to bottlenecks since they do not have sufficient short-term liquidity (which is a feature of other payment systems):

Stablecoins, and Libra in particular, have the potential to grow substantially and ultimately shoulder a significant fraction of global transactional activity. However, as currently designed and proposed, they do not take into account the microstructure of operating such a payment system. The risk of payment system gridlock, particularly during periods of stress, could have serious macroeconomic consequences.

 

And with regard to Libra, they pointed out that there is also the risk of negative yields:

Any system that relies on reserve-asset income to fund operational and other ongoing costs becomes unstable in a negative yield world. With more than half of high-quality short-term sovereign debt already negative, the vast majority of the remainder made up of U.S. government securities, and trends pointing towards global monetary easing, a fully negative yielding Libra reserve has become a plausible (some would argue likely) risk.