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By: Patrick Conlin

       On February 14, 2019 JPMorgan Chase and Co.became the first U.S. bank to wade its feet into the cryptocurrency sphere with its launch of JPM coin, a token directly pegged to the U.S. dollar to be used by institutional investors and corporations to transmit international payments. The news is being heralded by many financial journalistic outlets as a stablecoin, a token backed by a physical fiat currency insulated from the price volatility of cryptocurrency markets such as Bitcoin and Ethereum. The markets remained largely unaffected this week following JPM’s announcement. Perhaps, that reasoning is that JPM coin is not designed for retail investors. According to Umar Farooq who spearheads JPMorgan’s blockchain projects the coin is “designed specifically for institutional use cases on blockchain” and is not “to be created for public investment (Merced/Popper 2/14/19 NYT). The token will be utilized on JPM’s Quorum Blockchain, a centralized and permissioned network. It works as follows, JPMorgan will issue its JPM coin 1 for 1 to its vetted clients following account deposits in U.S. dollars. The token will be utilized on their centralized distributed ledger as a medium of exchange for international  payments and security purchases into varying accounts (or wallet addresses), the JPM coins are then burned and the client receives payments back in commensurate dollars. Back in April, JPMorgan tested its Quorum Blockchain by creating a simulation of a 150 million debt issuance certificate for a Canadian bank using its token resulting in an instant settlement (Hugh Son CNBC 2/14/2019).  Over time the bank hopes to increase its coins versatility as it could be expanded to represent currencies beyond the dollar (NYT). 

     The importance here is not quibbling over a crypto that’s not a crypto, as JPMorgan Chase and Co.’s centralized and permissioned blockchain network is more akin to supply chain services offered to businesses by companies such as IBM and Microsoft. What is evolutionary is that institutional investors are beginning to employ new technologies that will radically alter traditional landscapes of business and capital. As one of the largest custodial banks in the world JPMorgan represents some 80% of Fortune 500 companies and “clients that want to move huge sums of money would traditionally need to do so via wire transfer, a process that could take hours or days. With international transfers, changes in currency rates during long lag times could end up adding to customer costs” says Umar Farooq (NYT). Further, slippage creates an additional cost for clients of custodial banks and JPM coin could reduce this area of expense. Another pitch the bank can make to its clients is regarding record keeping and auditing from regulatory agencies, as all transactions are recorded on the blockchain adding an additional level of transparency in complex payment structures. Although JPMorgan is the first bank to launch a native token they undoubtedly will not be the last, and in the coming months and years it will be interesting to see how other competitors will adapt. 

     Will institutional banks with competing native tokens develop a system of intrabank settlement? In the near future could we see large banks adopt policy standards where competitors coins are accepted as collateralized debt payments? And if so will these instruments truly be backed equally by U.S. dollars or will collateral be diluted by speculative short term investment? All things considered JPM coin should be welcomed as positive news within the crypto community as institutions recognize and are employing blockchain technology. 

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