Joyce Chang Global Research

(1-212) 834-4203 J.P. Morgan Perspectives

joyce.chang@jpmorgan.com 21 February 2020
Kimberly Harano
(1-212) 834-4956
kimberly.l.harano@jpmorgan.com

Contributing Authors
US Equity Research
Airfreight and Surface Transportation
Brian Ossenbeck
brian.p.ossenbeck@jpmorgan.com
J.P. Morgan Securities LLC
U.S. Mid and Small Cap Banks
Anthony Elian
anthony.elian@jpmorgan.com
J.P. Morgan Securities LLC
European Equity Research Cross-Asset Fundamental Strategy
European Banks Federico Manicardi
Sheel Shah federico.manicardi@jpmorgan.com
sheel.shah@jpmorgan.com J.P. Morgan Securities plc
J.P. Morgan Securities plc
Emerging Markets Strategy
European Technology
Arthur Luk
Sandeep Deshpande
arthur.luk@jpmorgan.com
sandeep.s.deshpande@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
J.P. Morgan Securities plc

Nikhil Potluri Varun Rajwanshi Emerging Markets Economic and

nikhil.potluri@jpmorgan.com varun.rajwanshi@jpmorgan.com Policy Research
J.P. Morgan Securities LLC J.P. Morgan Securities plc Ben Ramsey
benjamin.h.ramsey@jpmorgan.com
Alex Lau
US Fixed Income Strategy J.P. Morgan Securities LLC
alex.lau@jpmorgan.com
J.P. Morgan Securities LLC Munier Salem
munier.salem@jpmorgan.com Long-term Strategy
Janet Lee J.P. Morgan Securities LLC Jan Loeys
janet.s.lee@jpmorgan.com jan.loeys@jpmorgan.com
J.P. Morgan Securities LLC Henry St John J.P. Morgan Securities LLC
henry.stjohn@jpmorgan.com
Editorial and Production Support
Asia Equity Research J.P. Morgan Securities LLC
Susan Christensen
Banks & Financial Services susan.l.christensen@jpmorgan.com
Global Markets Strategy
George Cai J.P. Morgan Securities LLC
Mika Inkinen
george.cai@jpmorgan.com
mika.j.inkinen@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
J.P. Morgan Securities plc
Daqi Jiao
daqi.jiao@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited

Insurance and Diversified Financials

Siddharth Parameswaran
siddharth.x.parameswaran@jpmorgan.com
JP Morgan Securities Australia Ltd

4
Joyce Chang Global Research
(1-212) 834-4203 J.P. Morgan Perspectives
joyce.chang@jpmorgan.com 21 February 2020
Kimberly Harano
(1-212) 834-4956
kimberly.l.harano@jpmorgan.com

Table of Contents
Executive summary...................................................................................................................................... 6
Blockchain, digital currency and cryptocurrency: Moving into the mainstream? ........................................... 7

Part I: Blockchain evolution: Moving into the mainstream?

Blockchain evolution: Moving into the mainstream?.......................................................................................... 12
Blockchain adoption in US financial services: Early innings but Signature Bank stands out...................................... 13
Blockchain adoption in European financial services: Exchanges embrace settlement and clearing efficiencies........ 15
Banks’ adoption of Blockchain: Latest developments in distributed
ledger technology ........................................................................................................................................ 17
Blockchain in Transportation: Hurdles persist to widespread adoption............................................................... 21

Part II: The rise of alternative payments

The rise of noncash payments globally............................................................................................................ 22
The Chinese case study: Managing a cashless economy at scale ................................................................. 25
The Japanese case study: Rapid growth of QR code payment and loyalty programs ......................................... 38

Part III: Are stablecoins a scaleable alternative to cryptocurrencies?

The market implications of Libra and other stablecoins ..................................................................................... 41
Can stablecoins achieve global scale?......................................................................................................... 51
Is the cryptocurrency market maturing? .................................................................................................... 58
Cryptocurrencies for portfolio diversification: Struggling to prove uniqueness ...................................................... 62
Venezuela’s Petro: All dressed up with nowhere to go................................................................................ 67
Appendix ................................................................................................................................................... 68

For Industry - please select Pan-Asia Research Choose Thematic Research → Type in J.P. Morgan → Select 5 Stars *****
Then select For Country - please select U.S. → Select Overall → Type in J.P. Morgan → Select 5 Stars *****
For more info see: Analyst Roster

5
Joyce Chang Global Research
(1-212) 834-4203 J.P. Morgan Perspectives
joyce.chang@jpmorgan.com 21 February 2020
Kimberly Harano
(1-212) 834-4956
kimberly.l.harano@jpmorgan.com

Executive summary
Blockchain evolution: Moving into the mainstream?
 While blockchain technology has not yet emerged into the mainstream, it has moved beyond experimentation
and use in payments, with stock exchanges embracing the efficiency around settlement/clearing and collateral
management.
 Trade Finance and Payments blockchain solutions offer the most incremental efficiencies in the banking sector
relative to other use cases, but widespread implementation is at least three to five years away.
 We see the long-term potential for Distributed Ledger Technology (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 (MMFs) 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.

This is our annual update on the latest developments in the adoption, evolution and performance of blockchain technology
and cryptocurrencies. We expand our report to include analysis of stablecoins and the rise of alternative noncash
payments. This report is part of our J.P. Morgan Perspectives series, which brings together views and analysis from across
the broad scope of J.P. Morgan’s Global Research franchise to look at big ideas and critical global issues transforming
investment markets. We hope this series will both inform and foster public debate on evolving economic, investment, and
social trends.
– Joyce Chang, Chair of Global Research