JPMorgan’s Crypto Ambiguity

    22 Nov 2021

    Investment bank JPMorgan Chase has a notoriously uncertain attitude towards cryptocurrencies. On the one hand, the administration’s stance on the issue is very negative. On the other hand, the bank actually launched its own stablecoin – JPM Coin. It’s meant to satisfy the bank’s corporate clients who want access to digital money.

    JPMorgan Chase’s $ 497.9 billion capitalization is still only half of Bitcoin’s $ 1.07 trillion, though it slightly exceeds Ethereum’s $ 416.6 billion. Regardless, the head of JPMorgan recently once again denigrated the first cryptocurrency, calling out bitcoin for the lack of real value.

    Speaking at the Institute of International Finance (IIF) event on October 11, JPMorgan Chase chairman and CEO Jamie Dimon said: “I don’t care. Bitcoin doesn’t matter to me. Our clients are adults. They disagree with me. But that’s how markets work. So, if they want the opportunity to buy bitcoin, even though we cannot store it, we can provide legal and transparent, as far as possible, access to the purchase.”

    The banker did take one final shot towards the end when he compared the benefits of bitcoin trading to smoking cigarettes. And this is not the first time that Dimon criticized cryptocurrencies – he has been making similar statements for several years now. Yet, it doesn’t stop JPMorgan from offering its clients a number of crypto-related services.

    In August, for example, the bank provided wealthy clients with access to their own bitcoin fund. According to Coindesk sources, JPMorgan launched this passively managed crypto fund in partnership with the NYDIG (New York Digital Investment Group). And since July 19, JPMorgan’s financial advisors have been offering their clients investments in four Grayscale funds (Bitcoin Trust, Bitcoin Cash Trust, Ethereum Trust, and Ethereum Classic Trust), as well as in the Osprey Bitcoin Trust.

    However, something even more fascinating is the JPM Coin cryptocurrency created by the JP Morgan financial holding. The token is a kind of phenomenon for the modern banking system.

    The development of JPM Coin began back in 2018, picking up pace in 2019. And it was Jamie Dimon who claimed that the coin could be used for internal and commercial settlements, as well as potentially for consumer settlements. At the same time, information on the bank’s official website stated that it had no plans to provide individuals with access to JPM Coin. Using this digital asset, the bank’s specialists set out to transform the process of making payments between JP Morgan divisions around the world.

    JPM Coin is a stablecoin pegged to the US dollar at a 1:1 ratio. It is built on a private version of the Ethereum blockchain – Quorum, more adapted to the needs of financial institutions.

    The test launch took place in mid-2019. The head of the blockchain development department at JPM, Umar Faruk, said then that stablecoin would reduce the application processing time for various financial transactions. In other words, JPM Coin will be used for instant settlements between the bank’s clients. According to the JPMorgan representatives, we are talking about an approximately $ 6 trillion sector.

    Broader prospects were also brought up, such as the potential for users to make mobile payments using JPM Coin at some point in the future. In addition, the coin could be used in settlements on transactions with securities and for treasury services.

    After wrapping up test payments with the bank’s real clients in June 2019, Umar Faruk said there was interest in JPM Coin from Europe, and a number of other countries, including the USA and Japan. However, the expert did not specify which companies and jurisdictions it was coming from. What’s more, outside observers noted that in addition to developing its cryptocurrency, JPMorgan Chase was working on its own interbank information blockchain network called IIN. It brings together several hundred companies, and its integration with the JPM Coin infrastructure was quite telling. Apparently, JPMorgan has plans to compete with Ripple, as right around that time, Ripple with its XRP token was rapidly taking over the market for cross-border interbank payments.

    Ripple itself was rather skeptical of the potential of that competition. And they were proved right: the JPM stablecoin didn’t really entice other financial institutions. First of all, simply due to competition. Secondly, because this whole JPMorgan Chase venture was perceived as nothing more than tokenization of fiat.

    Ripple CEO Brad Garlinghouse claimed that no major credit institution in the world would risk using JPMorgan’s stablecoin for its private payment systems. In his words, if every bank decides to create its own cryptocurrency, blockchains may completely lose their ability to interact, and the industry itself will stagnate. Garlinghouse, of course, is himself interested in XRP being used as the single independent instrument for interbank settlements.

    Today, we see JP Morgan’s stablecoin still used for internal settlements between bank clients, while Ripple is building an interbank payments ecosystem based on its own products. And although the company is now in major trouble with US regulators, XRP is already adopted by hundreds of financial institutions worldwide.

    At the same time, JPMorgan Chase seems to have come across new uses for JPM Coin and related projects. The financial holding has created the Onyx division with more than 100 employees, which deals with digital currencies and blockchain. Onyx reportedly offers specialized payment channel services for central banks interested in issuing their own digital currencies (CBDCs). That being said, we will most likely never see JPM Coin in retail use.

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