From nay to yay: JPMorgan’s path to crypto could shake up finance
JPMorgan Chase’s constant love-hate relationship with cryptocurrency has been a fascinating one to observe over the years, especially since the digital asset sector started exploding at the start of 2021. To put things into perspective, between February and April, the total market capitalization of the space doubled from $1 trillion to $2 trillion.
As a result of this meteoric ascent, the individual market cap of premier cryptocurrencies such as Ether (ETH) and Bitcoin (BTC) has gone on to become higher than those of established multinationals, with Bitcoin surpassing Tesla, Tencent, Visa, Berkshire Hathaway, Alibaba, Facebook and Samsung, among others.
Back in 2017, JPMorgan CEO Jamie Dimon referred to BTC as a “fraud,” even going as far as saying that he would fire employees if they dealt with Bitcoin. However, fast-forward four years, and Dimon has dialed back on his “fraud” label.
Not only that, but more recently, he seems to have relaxed his anti-crypto stance, claiming that crypto is here to stay and that it is now only a matter of time before governments across the globe start to regulate their local digital asset markets with an iron fist. Yet he maintained during an event that took place in late 2020 that Bitcoin was still not his “cup of tea.”
The times they are a-changin’
Despite Dimon’s somewhat negative outlook toward Bitcoin and the crypto industry, recent reports suggest that JPMorgan is currently preparing to offer some of its clients an actively managed Bitcoin fund, potentially becoming one of the largest — and most unlikely — banking institutions to embrace crypto.
In fact, there are speculations that the fund could be rolled at as soon as this summer, with insiders claiming that fintech firm NYDIG will provide its custody services to the banking behemoth.
Additionally, it has also been reported that JPMorgan’s Bitcoin fund will be “actively managed,” which comes in stark contrast to the passive fare currently offered by many crypto players such as Pantera Capital and Galaxy Digital.
Cointelegraph reached out to Sam Tabar — chief strategy officer of Bit Digital, a Nasdaq-listed Bitcoin mining firm, and former head of capital strategy for the Asia-Pacific region at Bank of America Merrill Lynch — who stated:
“JPMorgan’s launching of its own Bitcoin fund is just an inevitable response to rising consumer demand for blockchain. JPMorgan is a business and will pursue whatever money-making endeavors it can. Despite controversial statements from CEO Jamie Dimon, the company has been working towards incorporating blockchain technology within its business model for years.”
In this regard, it bears mentioning that the company’s “Onyx” division launched a stablecoin, JPM Coin, in late 2020. Not only that, but the contrast between Dimon’s past remarks and JPMorgan’s current direction, in Tabar’s opinion, is an exemplary illustration of the process of institutionalization. He believes that there will always be pushback from traditional frameworks and leaders, making JPMorgan’s change of heart a clear win for blockchain innovation.
He added: “Much of Dimon’s statements stemmed from a failure to grasp certain use cases for cryptocurrencies, such as tokenization and smart contracts.” However, it is also true that information on BTC was more scarce at the time, according to Tabar.
What does JPMorgan’s potential entry mean for the market?
There is no denying that the popularity of the crypto market has risen in recent months, with investors now having access to the industry via a variety of traditional financial instruments, including exchange-traded funds, exchange-traded products and even stocks in the form of companies like Coinbase. In the wake of all this, most legacy banking institutions have continued to shy away from the space even though it presents a tremendous amount of monetary and technological potential.
Felix Simon — head of business development at Dsent AG, a platform for digital assets and complex tokenizations, and former market head of sales for structured derivatives investments at Credit Suisse — believes that banks tend to shy away from investment offerings whose underlyings fundamentals are not well proven, adding:
“BTC has historically had an ‘ok-to-very good’ Sharpe Ratio, but until 2020 trading volumes were probably too low — i.e. avg. 24h vols being well below the 10bn mark — so it was not too representative versus USD daily FX trading. Since then these figures have increased and futures trading has also become available, so now historic data becomes relevant.”
In its most basic sense, the Sharpe ratio can be thought of as a metric that measures the performance of an investment compared with a risk-free asset, after adjusting for its risk. In other words, it can be used to gauge the total amount of return that an investor receives per unit of increase in risk.
Mattia Rattaggi, managing partner of Meti Advisory AG and former managing director and head of regulatory affairs and governance reporting for UBS, believes that the vast majority of banks have long neglected Bitcoin and cryptocurrencies in general out of the fear of associating themselves with a source of potentially negative headlines, as well as the fear of industries, like decentralized finance, that can have a direct impact on their centralized business model. He added:
“The banking sector is not late to the party because the party has just started and only a few early attendees have arrived so far. The change of attitude and stance towards cryptocurrencies will not be perceived as patchy. Rather it will be perceived as a risk averse conservative attitude.”
Will more banks continue to adopt crypto?
Expounding his views on the subject of whether more traditional financial entities will continue to enter the space, Simon noted that banks that are just starting to make their crypto foray are still “early movers,” implying that there is still room for many more such players to make their way into this rapidly evolving space.
Similarly, Tabar believes that while JPMorgan’s arrival to the blockchain scene will surely prompt some eye rolls within the cryptocurrency community, its lateness won’t affect its standing with the general public. He added:
“Morgan Stanley only just started offering its clients access to a Bitcoin fund, and Goldman Sachs hasn’t even released a concrete plan yet. Besides, JPMorgan’s fund is still a niche project, targeting private wealthy clients through a managed fund rather than a fixed one.”
All of these above-stated developments can, in some shape or form, be viewed by the cryptocurrency community as being major milestones for Bitcoin as well as for the institutionalization of blockchain technology.