Crypto valuations are the 'stuff that dreams are made of,' says J.P. Morgan asset management's Cembalest

Published Mon, Feb 7 202210:32 AM EST

Michael Cembalest, chairman of market and investment strategy at J.P. Morgan Asset Management, said though they may be tempting, he's resisting buying any cryptocurrencies. Good use cases for bitcoin and other crypto assets exist, according to Cembalest. The store of value thesis is the one he's most "tempted by," he said in a recent report, while remittances seem most likely to survive. J.P. Morgan Asset and Wealth Management has $3.1 trillion in assets under management. However, in terms of investment rationale alone, valuations are too high and are based on assumptions that crypto adoption will be broader and faster, he said. In turn, this could set investors up for disappointment. "I won't be buying it even though part of me wants to, regardless of consequences, since that's what some crypto holders have been counting on from the beginning," Cembalest said in the report. "I would take another look if crypto valuations and the companies linked to them plummeted to deeply distressed values," he added. "But until then, the most widely discussed use cases and the valuations at which they're trading are still the 'stuff that dreams are made of.'" He referenced a line in the 1941 movie "The Maltese Falcon," a story about the destructive power of greed and extreme wealth. It has been a widely held belief among long-time crypto enthusiasts that eventually Wall Street would see the appeal in cryptocurrencies and when they inevitably began buying them, it would bring the industry legitimacy and stability. Despite a wave of new interest in crypto by institutional investors and client demand for access to them, Cembalest is sticking to his views. The strategist examined use cases – which also included decentralized finance, nonfungible tokens and ledger technology for financial services, in addition to stores of value and remittances – as well as adoption trends and capital flows in cryptocurrencies in the 28-page report. Cembalest also included a page of rebuttals by experts in cryptocurrency and blockchains. They said his analysis failed to explore future income streams associated with crypto, generational wealth transfer and changing investment preferences. The critics also said the strategist was too focused on the developed world and didn't sufficiently address what the future might look like for crypto and blockchain. "The bold visions on the rebuttals page are worth thinking about, but there's both a time and a price for innovation," Cembalest said.

A man walks past a bitcoin symbol in the window of a company that offers blockchain application services on Dec. 21, 2021 in Berlin, Germany. Bitcoin and other virtual currencies rose strongly in value in 2021.

Sean Gallup | Getty Images News | Getty Images

Michael Cembalest, chairman of market and investment strategy at J.P. Morgan Asset Management, said though they may be tempting, he's resisting buying any cryptocurrencies.