The comments underscored widespread scepticism about the assets by established finance firms, while offering some succour for advocates of blockchain who are still waiting to see it take root.
Last year bitcoin, the original and biggest digital coin, lost nearly three quarters in value, putting the brakes on cautious curiosity from mainstream finance and investors that emerged during its vertiginous ascent in 2017.
JP Morgan said it was sceptical of the value of cryptocurrencies - suggesting the assets would only make sense in a dystopian scenario where investors have lost all faith in gold, the dollar, other major reserve assets and the global payments system.
"Even in extreme scenarios such as a recession or financial crises, there are more liquid and less-complicated instruments for transacting, investing and hedging," it said in a report on on crypto and blockchain.
Using bitcoin futures trading volumes as a proxy, JP Morgan said participation by financial institutions in crypto markets had slipped over the last six months, with individuals taking up an increasing share of the market.
Pension funds and asset managers have largely stayed clear, despite some advances in market infrastructure that have seen safer methods to store digital money emerge, with most worried about volatility, security flaws and propensity for illicit usage.
The usage of cryptocurrencies for payments - the intended purpose of bitcoin - will remain "challenged," JP Morgan said, adding that it was unable to pinpoint any major retailers that accepted digital coins in 2018.
Marketplaces where small businesses and individuals have control over payment methods would prove most fertile ground for the spread of cryptocurrencies, it said, citing a Reuters analysis of the usage of bitcoin in commerce.
Bitcoin, which stood at around $3,565 in afternoon trade, is likely to have cost support at around $2,400, and could fall below $1,260 if a bear market persists, JPMorgan said.
The New York-based bank struck a more optimistic tone on blockchain.
The shared ledger technology, which can process and settle transactions in minutes without third-parties for checks, has the potential to cut costs for global banks and digitalise complex process, it said.
Trade finance would likely benefit from blockchain, the bank said, cautioning that the lack of integration between private platforms could present a stumbling block for wider use.
(Reporting by Tom Wilson; Editing by Andrew Heavens)
By Tom Wilson
