If not for its size and stake in the financial status quo, JPMorgan Chase (JPM) - Get Report seemed like one of the most unlikely institutions to take a risk on cryptocurrency due to its CEO's notoriously critical stance on Bitcoin.
However, in a stunning reversal, CEO Jamie Dimon proved that no bank is too big to embrace the future and that cryptocurrency is less a risk than his newest competitive strategy. JPMorgan just became the first major bank to create its own cryptocurrency -- JPM Coin -- which will be slowly rolled out over the coming months to provide its clients with instant settlement for global payments on the blockchain.
JPMorgan Takes First Step Towards Private Blockchains
The appropriation of blockchain technology by institutional finance for its own purposes, completely separate from the tumultuous cryptocurrency market, has been anticipated by industry experts for years.
Banks have been researching blockchain long before Ripple's partnerships with curious entities like Santander Bank, enticed by the potential for cost-effective, cross-border value transfers. It was only a matter of time before banks used their tremendous resources to cut out the speculation and sculpt blockchain to fit their unique needs.
No private entity controls the blockchain. It's merely a new framework for anyone to build on, and for its applications to be able to transact with one another at very low costs. The significance of JPMorgan's latest move is that a major player in the institutional banking arena has put its stamp of approval on blockchain as a means of secure and efficient value transfer. This may represent the beginning of a sea change for mainstream financial institutions if JPMorgan can demonstrate that JPM Coin works as intended.
Though only a fraction of the banks $6 trillion in daily transaction volume will happen through JPM Coin, the move is beyond a beta test, and if proven successful, may see crypto begin to pull greater weight in more places. As a result, there are major implications for blockchain in lending, cross-border remittance and other banking activities, thanks to improved accessibility as costs for these services fall. But will all these developments have an impact on Bitcoin?
JPM Coin Diverges From the Crypto Market
Despite being a cryptocurrency, JPM Coin will not be purchasable by retail traders but instead used as a medium for settling payments between the bank's verified and compliant partners. It's a dollar-pegged stablecoin just like Tether or USDC, and JPMorgan clients can buy it by depositing dollars to the bank.
Payments are sent instantly and after one is received, the coins are destroyed and JPMorgan deposits the corresponding amount of dollars to the client's account. All transfer data is recorded to the ledger while dollars exist in the periphery as the endpoints of each transaction if necessary.
Accordingly, this news should have no effect on crypto prices at large, as it currently has no fungibility with other blockchain tokens and is largely inaccessible. Since the announcement, crypto markets have been largely quiet, and if anything, it casts a bearish light on Bitcoin's original mission, which has been re-purposed by JPMorgan and brought in-house. This tactic aligns well with CEO Jamie Dimon's perspective in recent years and may be his masterstroke after all this time.
Dimon's many comments on Bitcoin have never been delivered without a generous helping of harsh adjectives and criticisms, but his stewardship over JPM Coin only has the slightest resemblance to the grandfather cryptocurrency and cannot be considered hypocritical. Bitcoin is decentralized and administered by the consensus of peers, and as such is quite slow. Without instant issuance and singular control, Bitcoin suffers and cannot currently accomplish what JPMorgan intends.
Eventually, the bank hopes that its clients will replace their dollars with JPM Coins for the purpose of instant, costless transactions between subsidiaries and a growing list of partners, thus vastly expanding its balance sheet and advancing blockchain's practical use cases, leading to greater market share.
The author holds stock in investment holding company, Leucadia, and remains a partner in an emerging technology fund. He holds no positions in cryptocurrencies or in any companies that invest in them.