JPMorgan says Facebook's Libra has ‘potential to grow substantially,’ but not without risks

Stablecoins, such as Facebook’s proposed Libra coin, can possible grow, but not without risks, according to JPMorgan analysts.

The analysts, led by Joshua Younger, said that stablecoins, and Libra in particular, have the potential to grow “substantially and ultimately shoulder a significant fraction of global transactional activity,” as Bloomberg reported Thursday.

However, the way stablecoins are currently designed and proposed, “they do not take into account the microstructure of operating such a payment system,” the analysts said, adding: “The risk of payment system gridlock, particularly during periods of stress, could have serious macroeconomic consequences.”

Another risk facing Libra is negative yields, according to the analysts. As the proposed cryptocurrency is to be backed by a basket of currencies and government bonds, the analysts explained:

“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."