What does JPMorgan see in crypto now that it didn’t before?

What does JPMorgan see in crypto now that it didn’t before?
Image: Reuters/Benoit Tessier
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In 2017,  JPMorgan CEO Jamie Dimon said bitcoin was a “fraud.” Five months ago, one of the bank’s managing directors told Quartz that the blockchain technology underlying bitcoin may not make payments faster. But today, JPMorgan said it launched a pilot project that uses blockchain for business-to-business payments, using a token it dubs JPM Coin. CNBC first reported the news.

The biggest US bank by assets says the digital currency will represent one-for-one dollars held in designated accounts at JPMorgan, and will be used to make instantaneous payments. The New York-based lender says the system is designed for institutional clients and it doesn’t have plans to make the JPM Coin available to consumers.

What gives? JPMorgan’s unexpected move raises a lot of questions. Here are 13 big ones…

1️⃣ Has Jamie Dimon lost his mind? Maybe not. In the CEO’s infamous remarks in 2017, he appeared to be referring to the rampant speculation in bitcoin and other cryptocurrencies around the peak of crypto market mania. The bubble has since popped, and the bank today pointed out that “J.P. Morgan does not endorse the use of any particular cryptocurrency for investment or other purposes.”

2️⃣ Is this a real cryptocurrency? Not in the way that any of the early bitcoin enthusiasts envisioned it. JPM Coin is utterly centralized (“permissioned”), in the sense that its value is based on reserves held at the bank. The recordkeeping will be distributed to some extent, but the token is completely dependent on faith in the bank. In JPMorgan it trusts.

3️⃣ What could JPM Coin be used for? JP Morgan blockchain lead Umar Farooq told CoinDesk that JPM Coin might become a substitute for international wire transfers. He also raised the possibility of JPM Coin facilitating mobile payments.

4️⃣ Is JPM Coin available now? The bank said it tested the coin this month. For now, it’s a prototype that the bank plans to test more widely this year.

5️⃣ Are regulators cool with this?  The bank seemed to indicate that approvals aren’t needed since all that’s happened is basically an internal test. You can bet that the biggest US bank will keep the government watchdogs overseeing it completely in the loop if it expands the process.

6️⃣ Do other financial firms think blockchain is a game changer? Not necessarily. TransferWise is one of the fastest-growing money transfer services and has said it doesn’t, so far, see distributed-ledger technology (a close cousin of blockchain) speeding up the process or making it better. Spanish bank Santander rolled out a payment service using blockchain in April and, at the time at least, it was more expensive than using TransferWise. However, last month HSBC announced that it settled $250 billion of foreign exchange using distributed-ledger technology in the previous year.

7️⃣ Has any other Wall Street bank gotten into crypto? Goldman Sachs made a splash when it told the New York Times (paywall) it was starting a bitcoin trading desk. More specifically, it was buying and selling futures, which change hands on regulated exchanges. Those operations appear to have quietly faded away (paywall) as the buying frenzy evaporated. This suggests that JPM Coin, despite its potential, could also one day find itself on a dusty, forgotten shelf.

8️⃣ What does this mean for Ripple and XRP? JPMorgan’s entrance might seem like a death sentence for Ripple, but that’s probably not the case. In fact, the XRP market hardly responded to JPMorgan’s announcement. Ripple’s clients have used an XRP-based settlement system when they lack pre-existing correspondent banking relationships. XRP faces many challenges to adoption independent of any competition, including limited market depth, price volatility (the token’s price floats), and a disproportionate distribution of XRP to its founders.

9️⃣ Has anyone else tried a fiat-backed crypto token? Yes, several. But this is the first one backed by an institution with JPMorgan’s reputation.

1️⃣0️⃣ How does JPM Coin compare with the Gemini Dollar? Both digital assets are essentially coupons for US dollars. The major difference is that JPM Coin is geared toward institutions on a private network, whereas the Gemini Dollar is geared toward individuals on a public network (the ethereum blockchain).

1️⃣1️⃣ Is this only for US dollars? For now, but JPMorgan says the tech could be extended to other fiat currencies later.

1️⃣2️⃣ How does JPM Coin impact bitcoin? Slow your roll. Bitcoin is alive and well. Would crypto enthusiasts want to trade their bitcoin for a bank-issued digital currency? Probably not. Bitcoin continues to exist outside of the conventional financial system, and that part of its appeal isn’t going away.

1️⃣3️⃣ Does this mean central banks could also issue digital tokens? If previous pilots are any indication, JPM’s digital coin may not go anywhere. That said, if someday it’s seen as a raging success (a big if), JPM Coin might nudge the Fed to reconsider its rejection of a digitized dollar.