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JPMorgan, serving cryptocurrency companies, opens a new frontier

May 22, 2020

Although the JPM boss is tough on cryptocurrencies, the bank takes two regulated exchanges as customers, which some call “game changers”.

JPMorgan Chase, the largest of the Big Four banks in the United States, presents itself as an unlikely ally of digital asset providers who are trying to break the glass ceiling that still separates traditional finance from cryptocurrencies. When the news got public on May 12 The bank served the U.S.-based cryptocurrency exchanges Coinbase and Gemini. since April, some digital finance experts they saw as a sign that the relationship could finally thaw.

Despite the fact that JPM CEO Jamie Dimon has always reduced the suitability of cryptocurrencies as a financial instrument, the institute has not neglected blockchain technology, especially the development of proprietary DLT-based tools for international business. Now that the main bank in the United States appears to be expanding its acceptance to companies with cryptocurrency, Do traditional actors have a qualitative change in the perception of the digital financial space?

The importance of compliance with standards

JPMorgan, serving cryptocurrency companies, opens a new frontier
JPMorgan, serving cryptocurrency companies, opens a new frontier

Coinbase and Gemini are well placed to lead the integration of the crypto industry into the traditional financial system. The two companies have secured the most demanding official regulations, particularly at the federal and state levels.

Both are registered with the United States Department’s Financial Crimes Enforcement Network, and their custody services have received security qualifications in accordance with stringent certification standards. They have also received notoriously few licenses from the New York State Department of Financial Services: Gemini has a trust license, while Coinbase works under a special BitLicense.

Experts interviewed by Cointelegraph found that cryptocurrency companies willing to go one step further to ensure full compliance are the first to take advantage of the growing interest of large financial institutions in digital assets. Michael Sonnenshein, CEO of the digital asset management company Grayscale Investments, told Cointelegraph that eJPMorgan’s announcement – along with news of Paul Tudor Jones’ Bitcoin investment – promises closer collaboration between financial and compliant digital currency companiesand added:

“”There is greater awareness in the banking sector that digital currencies represent a growing market with strong upside potential.. Those who are leaders in regulatory approvals will benefit from these relationships. “

Pursue mutual interests

While traditional banks could benefit from the potential of digital assets and the rapid expansion of their user base, crypto companies need banking services because most of their day-to-day business remains in fiat currency. Some traditional financial organizations have already entered this market, which has made the JPM an unprecedented step. Amrit Kumar, president and chief scientific officer of blockchain company Zilliqa, told Cointelegraph:

“State Street – the second oldest non-retail bank in the United States – has offered stablecoin issuers such as Gemini custody services. Silvergate is also another bank that serves traditional crypto banking services to players in the crypto industry. JPMorgan’s entry into this area, however, indicates the growing trend that traditional institutions are now offering blockchain companies banking, custody and other services. “

Marc Fleury, CEO and co-founder of the Finnish company Two Prime, had a similar point: “Despite all the excitement of “traditional financial substitution”, crypto companies still have to build bridges to the Fiat system, as not everyone accepts cryptocurrencies for paymentss “.

According to Adam Traidman, CEO of the crypto finance company BRD, there is a difference between the routine banking services that every company has to request for digital currencies at some point and the strategic partnerships that can show more fundamental changes in market structures. . He added:

“He is more than a bank customer for the management of corporate treasury. It is strategic and could be a channel for customer acquisition, a technology game to create a digital currency, or, perhaps even more likely, the start of an aggressively developing MA market for cryptocurrency companies.where traditional financial institutions are buyers. “

What do the big banks want?

What could these strategic partnerships mean in the case of JPMorgan Chase and regulated cryptocurrency exchange? One of the answers could be the bank’s business model, which focuses on asset management and serving customers with high purchasing power. Meltem Demirors, Chief Strategy Officer of the investment company CoinShares, noted in Cointelegraph:

“”It seems that the initial focus will be on custodian clients who are inherently individuals and high-wealth institutions. […] Closer collaboration with two reputable, regulated cryptocurrency companies should be beneficial for JP Morgan to provide its wealth management clients with digital assets in a controlled and low-risk manner. “

Demirors mentioned that JPMorgan Wealth Management has been wooing cryptocurrency wealth for some time and that many digital finance executives are likely to be personal bank clients. Another reason that connecting to major cryptocurrency platforms could prove to be a strong business move the growing demand for exposure to digital assets and the corresponding desire of banks to meet this demand. Demirors said banks would prefer to offer low-risk exposure to cryptocurrencies, rather than seeing AUM [Activos bajo gestión] Leave their platforms to switch to cryptocurrencies. “He added:

“”I can imagine that most banks will first try to become partners before investing in building their own infrastructure.But as Fidelity shows, some of these functions can also be transferred to your systems when the opportunity grows. “

Another lens through which the resulting association could be viewed is the logic of inversion, as Fleury Cointelegraph emphasized:

“There is legitimate speculation that JPMorgan, an investment bank, is targeting future underwriting business for the alleged IPOs of the two exchanges. Even if it did, The establishment of these traditional banking relationships marks a new era of legitimacy for cryptocurrencies in general.“”

Aside from these direct benefits, there are some distant considerations that could have contributed to JPM leaders’ decision to engage with players in the cryptocurrency industry. On the one hand, Traidman believes the bank could try to gain a foothold in the digital finance space before the U.S. government. Expect the step towards digitizing the dollar sometime in the not too distant future:

“”This could be the first step on the way of the private sector to try and win US government contracts. make contactless payments using the “digital USD” mentioned in the first draft of the original Financial Incentives Act. Keep your friends nearby; Be close to your enemies. […] Your strategy could be to start cryptocurrency companies and then use relationships to test a commercial version of such digital currency technologies before the U.S. government contracts the private sector. “

What’s next

Manuel Rensink, strategy director of Finnish company Securrency, believes that the transfer of JPM to Gemini Bank and Coinbase “changes the rules of the game” and adds that “offers a roadmap for deeper integration of digital assets into the traditional world of modern financeRensink believes that many other traditional banks will follow suit and, because of the natural advantage of digital assets over the benefits of their underlying technology, will engage in the regulated cryptocurrency sector:

“The programmability of digital assets on blockchain tracks enables better security, smarter compliance, and faster distribution to those in society who need money. By borrowing the dollar unit of account, a digital asset can be a more efficient medium of exchange that can be instantly transferred between your phone and existing payment infrastructure“”

In addition, Kumar believes that “Blockchain-based assets are no longer an asset class that traditional financial institutions can afford to avoidUsing the niche offers traditional financial institutions the opportunity to offer attractive products and services to both cryptocurrency users and non-crypto users.