Stablecoin

Wall Street analysts throw cold water on J.P.Morgan’s ‘cryptocurrency’

Quick Take

  • J.P.Morgan’s new crypto JPMCoin might not be that big of a deal, Wall Street analysts told The Block
  • “The announcement is a non-event,” one analyst said

J.P.Morgan sent ripples through the blockchain world when it announced the launch of its own “cryptocurrency,” dubbed JPMCoin.

The bank, which is led by bitcoin basher Jamie Dimon, has long been involved in the blockchain market, but the announcement of JPMCoin is arguably one of the most notable moves by a Wall Street bank into the nascent digital assets market to date. The new crypto, unlike bitcoin, won’t be accessible to the public to trade, rather it will be used to settle a tiny fraction of JPM’s cross-border payments with clients. 

“It is far from fulfilling the promise of creating an ecosystem whereby all participants can utilize a universally accepted and redeemable digital currency,” Will Martino, a JPM veteran and founder of blockchain firm Kadena told The Block. “Instead, it is a mechanism where JPM will redeem a token that it issues on its platform only.”

“This is akin to getting limited to only being able to buy, gamble, and cash in your gambling chips at one specific casino,” he added.

The project’s centralized nature was met with fierce scrutiny by the crypto community — with many calling it a fake cryptocurrency since it’s not permissionless. Crypto skeptic and economist Nouriel Roubini called the venture a “joke.”

“It is private not public, permissioned not permissionless, based on trusted authorities verifying transaction not trustless, centralized not decentralized,” he said in a tweet.

Others pointed out that the move by J.P.Morgan isn’t unique considering other financial firms have their own versions of J.P.Morgan’s new coin such as Signature Bank. Signature Bank’s blockchain-based Signet system has on-boarded more than 100 clients who are using it to send millions of dollars a day. There’s also the USC project, which began in 2015 to apply DLT tech to the way central banks move funds around.

The Block reached out to sources in the Wall Street world to see what certain analysts who cover the bank and provide investor clients with price target analysis had to say, and most viewed this as inconsequential. 

“The announcement is a non-event,” said one analyst who declined to speak on the record. “Maybe you’ll see minor incremental margin efficiency gains within their settlement division, but those numbers will be immaterial to the bottom line for the foreseeable future.

“You might not even gain payments efficiency in the short term!,” Lex Sokolin, global director of fintech strategy at Autonomous NEXT, told The Block, echoing the aforementioned analyst’s thoughts.

Still, it is early days for the new initiative, Sokolin added. “The question to me is less about how much you can polish the one thing (cross-border), but what you can build on top of a new architecture. My intuition is that depends entirely on each bank’s set of products and services, and tech capability.”

Another analyst was unfazed by the news. “It seems like a real-time payments play, and those are coming even without distributed ledger technology.”

Still, some market observers had positive things to say about JPMCoin, including Andrew Keys, cofounder of ConsenSys Capital.

“Winners of this are JPM as [one of] the first movers, JPM’s clients that will have increased liquidity and decreased settlement latency, and the Ethereum community as this is an endorsement of the technology. Losers of this are definitely Ripple and R3,” said Keys.

Ripple, the financial technology firm behind cryptocurrency XRP, has stood out among the crypto pack for its ambition to partner with banks rather than topple the Wall Street guard. It offers a number of products that utilize XRP to facilitate quicker, cheaper international payments.