JP Morgan CEO Jamie Dimon and two senior analysts at the company argued in a report that as blockchains begin to exploit more energy efficient networks, a new way to make money called staking , will gain ground as a source of income for retail investors.
JP Morgan is an American multinational investment bank and financial services holding company. The company has been participating in the cryptocurrency market since 2018 through its Blockchain Center of Excellence. In 2019, the bank launched its stablecoin representing the US dollar, JPMCoin. In March, JP Morgan began offering clients Bitcoin exposure.
Currently, Bitcoin and Ethereum blockchains use an energy-intensive process called Proof of Work (PoW) to maintain the integrity of their blockchains, ensure that all transactions on the network are valid, and that distributed network registration is accurate.
The PoW system has been criticized by many as being energy intensive and bad for the environment, as the energy used to run these networks is not sustainable.
To create a more scalable and energy efficient system, the Ethereum blockchain is moving from a PoW system to a Proof-of-Stake (PoS), in an upgrade called Ethereum 2.0 in 2022. With this upgrade, investors lock their funds on the blockchain in exchange for rewards.
Ethereum 2.0 was scheduled to launch in January 2020 and is now expected to enter its final launch phase in 2022.
The current market capitalization of PoS tokens is over $ 150 billion, according to the report. The report predicts that the ability to use cryptocurrency assets to earn a return through staking will make digital assets more attractive and help increase widespread adoption of cryptocurrencies.
According to the report, staking now generates around $ 9 billion in revenue per year for the crypto industry. The report predicts that Ethereum’s transition to PoS in its long-awaited Ethereum 2.0 upgrade in 2022, could more than double payments, reaching $ 20 billion. He also predicts that staking returns in the blockchain industry will double again to $ 40 billion by 2025.
Currently, staking cryptocurrencies like Solana’s SOL or Binance Smart Chain’s BNB can generate returns ranging from 4% to 10% per year, according to data from stakingrewards.com. The report predicts that as the volatility of cryptocurrencies decreases, the ability to generate positive real return will be an important factor in helping the market become more mainstream.
The report stated, “Not only does staking reduce the opportunity cost of owning cryptocurrency relative to other asset classes, but in many cases, cryptocurrencies earn significant nominal and real returns. The return achieved through staking can mitigate the opportunity cost of owning cryptocurrencies compared to other investments in other asset classes such as US dollars, US Treasuries, or government funds. money market in which investments generate a positive nominal return. In fact, in today’s zero interest rate environment, we see returns as an incentive to invest. “
What does that mean
The report predicts that staking will become a growing source of income for everyone, including cryptocurrency intermediaries like Coinbase. He estimates that Coinbase’s staking revenue could increase by around 1,820% to $ 200 million, from $ 10.4 million in 2020.
The potential ability to achieve a constant positive return through cryptocurrency staking depends on the volatility of the market. For example, Ethereum’s competitor, Solana, allows investors to bet on SOL and earn SOL as a reward. If the value of the SOL token were reduced, there would be no real gains. This is true for any staking cryptocurrency, but as the cryptocurrency market matures and volatility decreases, staking will likely become a more reliable source of income.
Staking is an opportunity to earn passive income, especially for long-term holders of cryptocurrency tokens that operate on a PoS. Although volatility is its downside, its potential as an investment option for institutional organizations and retail traders is very strong.
JP Morgan is reportedly preparing to offer some clients a Bitcoin fund that is expected to launch over the summer.