Does the JP Morgan Coin (JPM Coin) Spell Doom for Bitcoin and Other Cryptos?
JP Morgan announced the JPM Coin earlier this month and in this post, we assess its impact on Bitcoin and crypto markets in general.
When Jamie Dimon called Bitcoin a fraud and BTC buyers “stupid” back in 2017, he caused a lot of controversies and was even credited with causing a drop in BTC prices. However, now, less than two years later, the JP Morgan CEO has announced the banks own digital currency, the JPM Coin.
Even though it seems like a major contradiction on Jamie Dimon’s part, the truth is, JPM Coin is nothing like Bitcoin, which was criticized by the JP Morgan CEO mainly because of it being backed by nothing tangible. JPM Coins, however, are backed by U.S. Dollars and are essentially stablecoins.
Does JPM Coin spell doom for Bitcoin and other cryptos?
No, not at all. In fact, it simply reinforces the reliability of blockchain technology, which underlies all cryptocurrencies, including Bitcoin. What JP Morgan has created is a centralized, private and closed-loop digital token, which merely facilitates the movement of U.S. Dollars among the bank’s own clients.
Built on a private, permissioned (not public) blockchain, the JPM Coin is issued against USD deposits made by JP Morgan clients in designated accounts. The clients can then access their JPM Coins and transfer them across the private network to other JP Morgan clients for payments and transfer of value. Any client holding JPM Coins can redeem them for USD at designated locations.
So essentially, the JPM Coin is nothing more than a token, representing a dollar, and moved over a private network. The main advantage here is that JP Morgan customers who move large amounts of money frequently do not need to wait for settlement times and avoid other inefficiencies involved in the process.
JPM Coin is, hence, not a replacement for Bitcoin, nor is it trying to do so. It is not even a replacement for other stablecoins, which are easily accessible for retail customers and are supported across a variety of exchanges and wallets.
What about JPM Coin and Ripple’s XRP?
The basic model of Ripple’s XRP and JPM Coin does coincide - both allow fast transfers of value across banking networks to reduce inherent inefficiencies. However, JPM Coin is even more centralized and not compatible with other banks. It operates within JP Morgan’s own ecosystem, whereas Ripple aims for XRP to be widely compatible within the global banking network.
Secondly, while this is an interesting experiment by JP Morgan, it is definitely not the way forward for all banks - since having multiple bank-specific coins will only lead to further fragmentation and that is not what crypto aims for a frictionless economy. Even XRP, despite a good plan, has several hurdles towards global adoption, particularly the inherent volatility in the crypto space.
What’s next for crypto?
JP Morgan’s experiment shows that there is demand for crypto/digital currency products, even if they are far from what cryptocurrencies originally aiming for. This is definitely a vote of confidence for the space, but what is important to realize is that institutional investors and Wall Street at large are unlikely to enter crypto markets in the absence of institutional level solutions.
Progress, even though it is slow, is being made in this regard, with Fidelity looking into an institutional level custody solution and the ETF proposals being put forth by VanEck SolidX and Bitwise Investments, which are currently under review by the U.S. SEC.
The launch of Bakkt’s physically settled Bitcoin futures would also be a great step forward, but the company continues to delay the launch, which is understandable given how regulators are not entirely comfortable with Bitcoin and other cryptocurrencies, particularly in regards to how their value is determined.
As we move forward and the market matures, we are definitely going to see institutional level solutions crop up, hastening Wall Street’s entry into crypto at large. The question, however, is how long will that take?