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The Maltese Falcoin

EYE ON THE MARKET. The Maltese Falcoin On cryptocurrencies and blockchains In this piece, we examine the adoption trends, capital flows and use cases for cryptocurrencies and blockchains. Use cases include crypto as a store of value, cross border remittances, decentralized finance, non-fungible tokens and blockchain adoption in financial services. By Michael Cembalest Chairman of Market and Investment Strategy for Morgan Asset & Wealth Management EYE ON THE MARKET MICHAEL CEMBALEST MORGAN. Ac c e s s o u r f u l l c o r o n a v i r u s a n a l y s i s w e b p o r t a l h e r e Fe b r u a r y 3 , 2 0 2 2.

in artificial intelligence and machine learning. These factors have lowered barriers of entry for new ... / foundations US Europe Asia Crypto adoption by investor type % of investors that own digital assets Source: Fidelity Institutional Digital Assets Survey. September 2021. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Bitcoin Ethereum Litecoin ...

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Transcription of The Maltese Falcoin

1 EYE ON THE MARKET. The Maltese Falcoin On cryptocurrencies and blockchains In this piece, we examine the adoption trends, capital flows and use cases for cryptocurrencies and blockchains. Use cases include crypto as a store of value, cross border remittances, decentralized finance, non-fungible tokens and blockchain adoption in financial services. By Michael Cembalest Chairman of Market and Investment Strategy for Morgan Asset & Wealth Management EYE ON THE MARKET MICHAEL CEMBALEST MORGAN. Ac c e s s o u r f u l l c o r o n a v i r u s a n a l y s i s w e b p o r t a l h e r e Fe b r u a r y 3 , 2 0 2 2.

2 The Maltese Falcoin : on cryptocurrencies and blockchains First let me try and anticipate some of your questions. Yes, I am turning 60 this May. This obviously renders me too old to comment on this topic Yes, I understand creative destruction. Hundreds of companies have been removed from the S&P 500 since 1980 due to distress, mostly inflicted by more innovative competitors. We maintain a lot of creative destruction trackers; see Appendix B. Yes, I follow the changes taking place that break down barriers. We track the plummeting cost of information storage, improvements in CPU processing speeds, increases in 5G download speeds and gains in artificial intelligence and machine learning.

3 These factors have lowered barriers of entry for new companies to challenge incumbents in a variety of sectors, particularly financial services. See Appendix C. Yes, I showed this piece to crypto and blockchain professionals. Their rebuttals appear in Section 8. Yes, I know this is 28 pages but it's a quick read since there are a lot of charts No, I did not anticipate the increase in crypto values from $25 billion to $250 billion to $ trillion (and now $ trillion), and I recognize that I am late to this No, I am not going to extensively cover the technical jargon involved.

4 If you would like to read up on mempools, cryptographic hash puzzles and Merkle roots, there are two advanced primers in Appendix A. No, I am not going to address issues other than the investment rationale for crypto and blockchain use cases. Others have written on mining energy intensity, on whether crypto is good or bad for society, on illicit crypto transactions and on crypto's impact on Central Banks trying to retain control over broad money, inflation and employment. Such topics are beyond the scope of this piece No, I don't speak for anyone at JP Morgan other than myself.

5 If you disagree with the opinions and data expressed here, don't hold anyone else accountable for them OK, let's begin. Cryptocurrency market cap Table of contents US$, trillions $ 1. Venture capital flows into crypto/blockchain 2. Investor crypto adoption trends $ 3. Bitcoin and the store of value $ 4. Crypto and cross border remittances $ 5. Decentralized finance 6. Non-fungible tokens and the art world $ 7. Financial services and the blockchain $ 8. Rebuttals to this paper $ 9. Conclusions: the Maltese Falcoin 2016 2017 2018 2019 2020 2021 2022.

6 Source: TradingView, JPMAM. February 2, 2022. 10. Appendices INVESTMENT PRODUCTS ARE: NOT FDIC INSURED NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, OR ANY OF ITS AFFILIATES SUBJECT TO 1. INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. EYE ON THE MARKET MICHAEL CEMBALEST MORGAN. Ac c e s s o u r f u l l c o r o n a v i r u s a n a l y s i s w e b p o r t a l h e r e Fe b r u a r y 3 , 2 0 2 2. [1] One thing's for sure: there's a ton of money pouring into crypto and blockchain investments If you believe that mobilization of capital is a can't-miss way of assessing the future, you can stop reading here and conclude that crypto-related investments are bound to succeed.

7 As shown below, venture capitalists have been plowing money into crypto at an accelerating pace, rivaling other innovation categories. The year 2021. was a particularly strong year for capital raising; average pre-IPO valuations for crypto and blockchain investments are now much higher than for VC investments overall. I'm often told that some of the most successful, brilliant minds in Silicon Valley are working on crypto and blockchain solutions, and many of them have impressive track records of delivering returns to institutional and individual investors.

8 Even so, I'm more interested in what happens to the capital and its long-run returns than on its mobilization. A breakdown of VC investments in crypto shows ~40% in trading, investing and lending businesses; ~20% in Web applications and NFTs; ~10% in custody; and the remainder in a variety of businesses focused on compliance, mining and data security. Venture capital investments by sector Venture capital investments in crypto and blockchain US$, billions US$, billions Number of deals $120 $12 600. Crypto Venture capital money invested (lhs). $100 Quantum Deal count (rhs).

9 $10 500. CloudTech/Devops $80 Robotics & Drones $8 400. AI / machine learning $60 $6 300. Fintech $40 $4 200. $20 $2 100. $0 $0 0. 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021. Source: Pitchbook, Galaxy Digital Research. January 2022. Source: Pitchbook, Galaxy Digital Research. January 2022. VC money invested in crypto & blockchain by stage Crypto/blockchain vs all VC pre-money valuation US$, billions US$, millions $12 $80. Later Stages Crypto & blockchain All venture capital $70. $10 Series A. $60. Seed $8. Pre-seed $50. $6 $40. $30. $4.

10 $20. $2. $10. $0 $0. 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021. Source: Pitchbook, Galaxy Digital Research. January 2022. Source: Pitchbook, Galaxy Digital Research. January 2022. 2. EYE ON THE MARKET MICHAEL CEMBALEST MORGAN. Ac c e s s o u r f u l l c o r o n a v i r u s a n a l y s i s w e b p o r t a l h e r e Fe b r u a r y 3 , 2 0 2 2. [2] Crypto adoption trends and attitudes As shown below, crypto adoption is rising across investor types and regions. While institutional ownership has been low to-date, it is now growing. Bridgewater estimated that ~1 million Bitcoin (around 5% of total issued supply) are now held by institutional investors via custodial intermediaries1.


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