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JPMorgan’s path to crypto could shake up finance

by Gordon James

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Some of the world’s biggest banks claim they are looking into embracing cryptocurrencies, but the truth is most of them are just using the buzz around blockchain technology to improve their bottom line. (Let’s face it, if a bank is rich enough to have a branch on every corner, they are going to be looking for ways to make more money, not to give it away to the hordes of crypto traders and speculators.) JPMorgan Chase is a rare exception: the largest bank in the U.S. has been quietly working on making the cryptocurrency market safer by developing its own stablecoin.

The financial sector is at the center of most conversations about blockchain technology. Major financial institutions, after all, were among the first to embrace the technology as a way to cut costs and make their businesses run more efficiently. More recently, though, a growing number of companies and investors in the blockchain space have begun to think about how cryptocurrencies could be integrated into the financial sector as well. Now JPMorgan Chase is weighing its own move into the field. …the company is looking to patent a system in which a fraction of a cryptocurrency, such as bitcoin, could be used as collateral for a loan. The person familiar with the matter explained that JPMorgan is considering a system in which a customer who wants to take out a loan would have to put up a certain

JPMorgan Chase’s ongoing love-hate relationship with cryptocurrencies has been interesting to watch over the years, especially since the digital asset class began to explode in early 2021. To put this in perspective: From February to April, the industry’s total market capitalization doubled from $1 trillion to $2 trillion.

As a result of this meteoric rise, the individual market capital of major cryptocurrencies such as Ether (ETH) and Bitcoin (BTC) now exceeds that of established multinational companies, including Bitcoin. Tesla, Tencent, Visa, Berkshire Hathaway, Alibaba, Facebook and Samsung performed better.

In 2017, JPMorgan CEO Jamie Dimon called BTC a scam and even said he would fire his employees if they traded in bitcoin. Four years have passed and Dimon has dropped the label of villain.

Moreover, he seems to have softened his anti-cryptocurrency stance recently, saying that cryptocurrencies are here to stay and that it’s only a matter of time before governments around the world start regulating their local markets for digital assets with an iron fist. However, at an event in late 2020, he said bitcoin was still not his thing.

Change of schedule

Despite Dimon’s rather negative attitude towards bitcoin and the crypto industry, recent reports suggest that JPMorgan is preparing to offer some of its clients an actively managed bitcoin fund, potentially making it one of the largest – and most unlikely – banking institutions to embrace the cryptocurrency.

There is even speculation that the fund could launch as early as this summer, with insiders claiming that fintech firm NYDIG will provide custody services to the banking giant.

Moreover, it has been reported that JPMorgan’s bitcoin fund will be actively managed, which is in stark contrast to the passive rates currently offered by many cryptocurrency players, such as Pantera Capital and Galaxy Digital.

Cointelegraph contacted Sam Tabar, chief strategy officer of Bit Digital, a Nasdaq-listed bitcoin miner, and former head of Asia-Pacific capital strategy at Bank of America Merrill Lynch, who said:

JPMorgan’s launch of its own Bitcoin fund is simply an inevitable response to growing consumer demand for blockchain. JPMorgan is a business and will do whatever it takes to get money. Despite controversial statements from CEO Jamie Dimon, the company has been working for years to integrate blockchain technology into its business model.

In this regard, it is worth noting that the Onyx division launched the JPM Coin Stablecoin in late 2020. Moreover, the contrast between Mr. Dimon’s past statements and JPMorgan’s current management clearly illustrates the institutionalization process, Mr. Tabar said. According to him, traditional managers and leaders will always be ousted. So JPMorgan’s turnaround is a clear victory for blockchain innovation.

He added: Most of Mr. Dimon’s claims stem from a misunderstanding of certain uses of cryptocurrencies, such as… B. Tokenization and Smart Contracts. But it’s also true that information about BTC was scarce at the time, Tabar said.

What does the possible exit of JPMorgan mean for the market?

There’s no denying that the popularity of the cryptocurrency market has increased in recent months, and investors now have access to the sector through a variety of traditional financial instruments, including exchange-traded funds, exchange-traded products, and even stocks in the form of companies like Coinbase. This is the reason why most traditional banking institutions are still reluctant to enter this field, despite its huge monetary and technological potential.

Felix Simon – head of business development at Dsent AG, a platform for digital assets and advanced tokenisation, and former head of sales in the structured derivatives investment market at Credit Suisse – believes that banks tend to shy away from investment proposals whose fundamentals are not well proven:

Historically, BTC has had a good to very good Sharpe ratio, but trading volumes prior to 2020 were likely too low – i.e. 24-hour average volumes were well below the 10 billion mark – and thus not very meaningful for daily trading of USD currencies. Since then, these figures have increased and futures trading has also become available, so historical data is now relevant.

In the simplest terms, the Sharpe ratio can be thought of as a metric that measures the performance of an investment relative to a risk-free asset after adjusting for risk. In other words, it can be used to estimate the total return an investor receives per unit increase in risk.

Mattia Rattaggi, managing partner at Meti Advisory AG and former managing director and head of Regulatory and Governance Reporting at UBS, believes that the vast majority of banks have long ignored bitcoin and cryptocurrencies in general for fear of being associated with a source of potentially negative headlines and for fear that industries such as decentralized finance will have a direct impact on their centralized business model. He added:

The banking sector was not late to the party, as the party had just begun and so far only a few early entrants had joined the party. The change in attitude and mindset towards cryptocurrencies will not come about gradually. Rather, it would be seen as a conservative, risk-averse attitude.

Will banks continue to adopt cryptocurrencies?

When asked if other traditional financial institutions will enter the cryptocurrency market, Simon noted that banks that are just beginning to enter the cryptocurrency market are still early adopters, meaning there is still room for many more such players to find their way into this rapidly evolving space.

Tabar also believes that while JPMorgan’s arrival on the blockchain scene is likely to cause some eye-rolling in the cryptocurrency community, the slow pace won’t erode its credibility with the general public. He added:

Morgan Stanley has just started offering its clients access to a bitcoin fund, and Goldman Sachs has yet to announce concrete plans. Moreover, the JPMorgan fund remains a niche project, aimed at high net worth individuals with a managed fund rather than a fixed income fund.

All of the above developments, in one form or another, can be viewed by the cryptocurrency community as milestones for both bitcoin and the institutionalization of blockchain technology.

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