Banks, especially the major global ones, are heavily regulated and are expected to toe the line when issues of safety and soundness are raised in private planning discussions. Crypto enthusiasts, with Ripple (“XRP”) being the most vocal proponent, have publicly avowed to replace anachronistic banking services like SWIFT with innovative blockchain and cryptocurrency approaches. After JPMorgan Chase (JPM) announced its new “JPM Coin” yesterday, industry comments were swift and deprecating, as if no one expected a bank to act like a bank.
First the facts: Much to the surprise of crypto devotees and Wall Street analysts, JPMorgan Chase unveiled its long-awaited attempt at embracing blockchain technology and leveraging its efficiencies for the benefit of the global powerhouse and its customers. It will issue JPM Coins to its customers for internal transfer purposes and will peg the value at US$1 per coin, referred to as a “stablecoin” in crypto parlance.
The major stumbling block in the past that supposedly kept banks at arms’ length was the volatility of crypto price behavior and its inherent lack of liquidity when dealing with large transaction amounts. In other words, is it strange to think that a bank would want the value of a transaction to change measurably once the funds had arrived at their final destination? The JPM Coin will have no such problem.
Although Jamie Dimon, the Chairman and CEO of JPMorgan Chase, has continually bashed Bitcoin and other cryptos as being a “scam”, a “Ponzi scheme”, and something that would “not end well” for investors, he and his staff have always praised blockchain technology, as a powerful new innovative tool. Umar Farooq, the head of JPMorgan’s blockchain projects, elaborated on just this point: “The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this.” Let it be said that Dimon has recanted his negative remarks.
Any type of cross-border payment in the JPM ecosphere would benefit. For 80% of the Fortune 500 and for other customers, too, JPM presently moves $6 trillion around the globe on a daily basis and earns a tidy sum of $9 billion for handling this task on an annual basis. The immediacy of posting will remove present 24-48 hour delays involved with a centralized process managed by the SWIFT organization. No longer will wire transfers be required for cross-border, debt procurement and fulfillment, or corporate cash management payments.
Tom Shaughnessy, principal at Delphi Digital, a crypto research boutique in New York, was quick to quip: “This is a huge slap in the face for Ripple. Ripple’s target market is cross-border payments and remittances and now JPMorgan’s effort is a direct threat.” He, however, did acknowledge that, “The JPM Coin is a stable coin whereas XRP is anything but stable. That’s going to be a very contentious point for banks who don’t want the currency in which they make payments to be volatile.”
Brad Garlinghouse, Ripple’s chief executive, has publicly stated that his firm will “leapfrog Swift’s 1970s-conceived system with a faster, cheaper blockchain-like one”. He and Gottfried Leibbrandt, the chief executive officer of SWIFT, recently got into a verbal sparring match at a FinTech Summit in Paris over this very comment. Asked for his reaction to the JPM news, he discounted any impact and tweeted: “As predicted, banks are changing their tune on crypto. But this JPM project misses the point –- introducing a closed network today is like launching AOL after Netscape’s IPO. 2 years later, and bank coins still aren’t the answer.”
Crypto industry comments aside, it is not that difficult to imagine Jamie Dimon in the shadows with a huge smirk on his face. In one quick stroke, he has leapfrogged his competition, bypassed the apparent red tape of the SWIFT organization, and snookered every analyst on Wall Street that had pigeonholed his bank as being behind the times and refusing to buy into the current paradigm shift that is sweeping the planet. JPMorgan Chase has acted. Will others pick up the baton?