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JPMorgan’s Balancing Act Between Blockchain and Crypto

Multinational investment bank JPMorgan Chase has had a chequered relationship with cryptocurrencies over the years. While it has maintained an apparent apathy toward Bitcoin and the likes, the financial institution has openly embraced blockchain technology and is actively using it in various internal projects.

This has come to the fore in August 2018, as chief information officer Lori Beer made a bold statement in an interview, claiming that blockchain technology ‘will replace’ existing financial systems in the next few years.

Beer’s sentiments come at an interesting time, especially considering JPMorgan’s yin-and-yang attitude towards decentralized ledger technology (DLT).

Blockchain technology underpins the existence of cryptocurrencies, which have multiplied in number and applications since Bitcoin was birthed in 2009. Therefore, it is worth taking a trip down memory lane to understand the juxtaposition between the company’s attitude toward cryptocurrencies and blockchain technology.

JPMorgan’s love/hate relationship with crypto

As has been the case with most financial institutions, the emergence of cryptocurrencies has been met with a certain element of trepidation. Some have been more accepting than others, but JPMorgan has had one of the more interesting stories to tell.

The company hasn’t been overly opposed to the notion of cryptocurrencies, but its leadership — CEO Jamie Dimon, in particular — has been nothing short of hypercritical over the past few years. As we will delve into, this has caused a contrasting narrative in terms of the company’s projects and exploits in the space when compared with the opinions of Dimon.

Quorum

In November 2016, JPMorgan published a white paper for Quorum, which is a private blockchain platform built on the Ethereum protocol.  

As a founding member of the Enterprise Ethereum Alliance (EEA), JPMorgan’s development of Quorum is aligned with the mandate of the EEA, which aims to bring privacy, scalability and security to the Ethereum blockchain. This is directly aimed at enterprises that want to control the accessibility and use of data through a blockchain system.

Quorum’s blockchain looks to provide data privacy to companies, using the Ethereum network to validate transactions, which was described in the opening paragraph of the white paper:

“Though the design is simple, the solution preserves many of the key attributes of Ethereum, such as ensuring every node on the network participates in and increases the overall security of the entire network while only revealing the details of private transactions to those party to the transaction.”

Quorum uses cryptography to protect sensitive data, only allowing those with the necessary permission to access certain transaction data.

Almost a year-and-a-half later, on April 20, 2018, JPMorgan finally tested the Quorum blockchain with a number of high-profile banks participating.

JPMorgan is even considering divorcing Quorum from the company, in an effort to make the platform more accessible to the markets. A barrier to entry is the fact that market competitors are unlikely to use a platform that is run by a competitor bank.

Topsy-turvy 2018

As cryptocurrencies endured a humbling correction in the months after Bitcoin’s all-time high in December 2017, JPMorgan — among other banks — stopped processing cryptocurrency purchases with its credit cards, citing the volatility of the markets.

By the end of February, the bank delivered its annual report to the U.S. Securities and Exchange Commission (SEC). The report added cryptocurrencies to its sections on ‘Risk Factors’ and ‘Competition,’ illustrating the disruptive aspects of the space.

The company told the SEC that the emergence of cryptocurrencies would require the bank to spend more money adapting its products to appease clients and customers, with the possibility of the bank eventually losing market share:

“Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”

In May 2018, the company announced the creation of the position of a head of crypto assets strategy at the company. The post was immediately filled, with Oliver Harris the man in charge of leading the company’s new cryptocurrency projects. It is understood that Harris’ position would not involve the trading of cryptocurrencies, but rather investigating the use of cryptocurrency and blockchain services that could benefit JPMorgan’s processes.

Around the same time, vice president Daniel Pinto said the company was looking into the Bitcoin space — admitting interest in the futures markets in an interview with CNBC. Pinto went as far as saying they would clear Bitcoin futures if they had to, while also saying that cryptocurrencies faced a number challenges:

“I have no doubt that in one way or another, the technology will play a role. [Regarding Bitcoin], you cannot have something where the business proposition is to be anonymous and to be the currency for unknown activities. That will have a very short life because people will stop believing in it, or the regulators will kill it. I think the concept is valid [and that’s why] you have many central banks looking into. The tokenization of the economy, for me, is real. Cryptocurrencies are real but not in the current form.”

Jamie Dimon

JPMorgan CEO Jamie Dimon has long been a harsh critic of Bitcoin and cryptocurrencies. Dimon’s dissenting attitude dates back to 2015, when he said that Bitcoin would be stopped and that blockchain “is like any other technology.” Furthermore, Dimon made it clear that the bank would use the underlying technology to better its own systems:

“If it is cheaper, effective, works and secure, then we are going to use it. The technology will be used, and it could be used to transport currency — but it will be dollars, not Bitcoins.”

Dimon’s most infamous critique of Bitcoin came in September 2017, when he labelled the cryptocurrency a fraud. The JPMorgan CEO went as far as threatening to fire employees that were offering to trade cryptocurrencies on behalf of their clients.

Dimon’s commentary on the subject ebbed and flowed in the following months, as his own views on the sector were seemingly at odds with the plans of the company. Dimon went as far as saying he wouldn’t make any more comments on Bitcoin, with JPMorgan adopting an ‘open-minded’ approach to cryptocurrencies.

In the lead up to the launch of the first-ever Bitcoin futures contracts in December by the Chicago Mercantile Exchange, the company even considered facilitating access to trading futures.

JPMorgan global market strategist Nikolaos Panigirtzoglou furthered the dividing opinions between the company and its CEO, writing in a note to investors that the launch of Bitcoin futures would drive the legitimization of the cryptocurrency:

“The prospective launch of Bitcoin futures contracts by established exchanges in particular has the potential to add legitimacy and thus increase the appeal of the cryptocurrency market to both retail and institutional investors.”

Dimon seemingly changed his tune in 2018, saying he was not really interested in the subject in a January interview, while admitting he regretted his 2017 ‘fraud’ remarks.

A few weeks later, at the World Economic Forum in Davos, Dimon told Cointelegraph that he ‘was not a skeptic’ of cryptocurrencies.

After a number of months out the spotlight, Dimon made headlines earlier this month, reportedly calling Bitcoin a ‘scam,’ before reiterating he was not interested in the subject during a gala speech.

Dimon was quoted as saying government would move to shut down cryptocurrencies due to a lack of control over the space. This followed an interview with the Harvard Business Review, in which Dimon said that JPMorgan was testing blockchain technology for use in a wide range of applications within the company.

Winds of change

Dimon’s headline grabbing statements have somewhat taken away from the work being done at the global financial institution.

As previously mentioned, the company’s CIO Lori Beer has painted a more accurate picture of the company’s stance on blockchain technology and cryptocurrencies.

Her statements of blockchain’s impending adoption and the effect it will have on a global scale cannot be understated and seems to be a big driving force in JPMorgan’s Quorum project.

As Beer said, the company needed to create a blockchain platform that serves the needs of the company and its many clients:

“We are currently following many paths. We invented a blockchain with an open code based on Ethereum. Actual blockchain technology has not yet resolved issues with privacy and scalability that we needed. We are connected to Hyperledger and Enterprise Ethereum Alliance. The application of this technology in business is more important to us than the technology itself. We are looking not only for cost reduction, but also for opportunities to develop new products.”

The CIO also said that JPMorgan is ‘evaluating’  the current state of the cryptocurrency space, while making it clear that it would only support regulated markets and currencies.

While this doesn’t take the company any closer to being actively involved in the cryptocurrency markets, its appetite for development of blockchain says a lot about the underpinning technology and the promise it has for the financial world.

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JP Morgan CIO: Blockchain Will Replace Existing Technology

JP Morgan CIO Lori Beer said at a press conference in Buenos Aires that blockchain will “replace existing technology” in a few years, according to Argentinian website Cripto247 August 23.

“We will see a greater and wider use of blockchain […] In a few years blockchain will replace the existing technology, today it only coexists with the current one,” Beer said.

Beer explained to Cripto247 that JP Morgan uses blockchain technology to “simplify the payment process and to store customers’ information related to KYC (Know Your Customer) policy.” She added that blockchain technology helps to prevent money laundering. Beer further explained the use of blockchain technology by the bank:

“We are currently following many paths. We invented a blockchain with an open code based on Ethereum. Actual blockchain technology has not yet resolved issues with privacy and scalability that we needed. We are connected to Hyperledger and Enterprise Ethereum Alliance. The application of this technology in business is more important to us than the technology itself. We are looking not only for cost reduction, but also for opportunities to develop new products.”

Beer was also asked about JP Morgan’s position on buying cryptocurrencies. She explained that the bank only supports what is regulated and has specialists who are “evaluating what is happening” with virtual currencies. When asked about the institutional position regarding Initial Coin Offerings (ICOs), Beer preferred not to respond.

Earlier in August, Cointelegraph reported that JP Morgan Chase’s CEO Jamie Dimon was optimistic about blockchain. “[JPMorgan] is testing [blockchain] and will use it for a whole lot of things,” he said.

In May, JP Morgan Chase filed a patent for a blockchain powered peer-to-peer payments network that could be used for intra- and inter-bank settlements. The patent application proposes using a distributed ledger to process payments in real-time, without having to rely on a trusted third party to hold the true “golden copy” of the audit trail.

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Crypto Exchange Revenue May Double In 2018, Despite Market Downtrend

To be frank, the cryptocurrency market hasn’t been in an optimal position since the start of the year, with prices crashing by upwards of 70% after the monumental run-up of 2017. However, according to analysts from Sanford C. Bernstein & Co, an American investment management and research house, crypto exchanges are still expected to post hefty revenues by the end of 2018.

In fact, collective revenues could double to upwards of $4 billion this year in comparison to last year’s figures, even if the market continues to head lower. According to Bernstein’s analyst team, the purchase and sale of cryptocurrencies on spot market exchanges generated an approximate $1.8 billion of fees last year (based off average transaction/trading fees).

To give this figure some perspective, the revenues generated by crypto exchanges are 8% of the fees incurred by investors on legacy market exchanges, an impressing statistic to say the least.

Although some were skeptical of the $4 billion projection, evidence posted by top crypto exchanges seems to tell a different story. As reported by Ethereum World News in early-July, Binance is expecting to rake in nearly $1 billion in profits in 2018 alone, despite the dismal performance of the market in the first 8 months of the year.

Many attributed this substantial figure to the relatively high fees Binance charges, along with the rumored listing fee that some speculate is upwards of $2 million per token. While the latter source of revenue is an ongoing source of controversy, the former has been accepted by the crypto community as fact. For most traders, Binance charges a 0.1% fee for the maker and taker of an order. While a 0.1% fee may sound near-negligible to many, incurred fees can rack up over time, often eclipsing how much a trader may be charged by a traditional markets brokerage, like TD Ameritrade or Charles Schwab.

For many premier exchanges, it is much of the same, with many other crypto-to-crypto platforms charging fees that are comparable to Binance, if not even more. Additionally, exchanges that support fiat-to-crypto even charge additional fees for the deposit and withdrawal of fiat.

Legacy Firms Want In On Crypto, Or Do They? 

Taking the aforementioned statistics and forms of revenue into account, it quickly becomes apparent that this flowering industry remains lucrative. The potential for staggering revenue figures and high-profit margins has led Wall Street veteran firms, like Goldman Sachs and JPMorgan Chase, to metaphorically dip their toes in this budding space. Adding more credence to this thought process, the aforementioned analyst team wrote:

“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms.”

These individuals later noted that traditional firms could make a foray into this industry by providing custodian, asset management, and market-making services to an array of investors.

However, some fear that due to rampant regulatory concerns and rapidly-fluctuating prices that Wall Street firms will be hesitant to make a meaningful move on the market. As such, Coinbase, which accounts for a speculated 50% of the transaction revenue pool, may end up in an “unassailable competitive position” in the future.

While crypto space will undoubtedly continue to develop, it may be a few more years before traditional institutions offer spot market support for the masses.

Image Courtesy of Charles Forerunner

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Bank of Montreal, Teachers’ Pension Fund Trial Canadian Dollar Debt Deal via Blockchain

The Bank of Montreal and Ontario Teachers’ Pension Plan have tested a Canadian-dollar debt deal using blockchain, Bloomberg reports August 15.

In the pilot transaction, the bank is said to have sold $250 million Canadian dollars (around $190 million) of one-year floating rate deposit notes to the teachers’ pension fund, implementing blockchain tech to mirror the transaction. This is reportedly the first use of the technology for a Canadian dollar “fixed-income issue.”

Bloomberg notes that the Bank of Montreal’s BMO Capital Markets unit has built a prototype blockchain-based settlement system, which enables issuers and buyers to track transactions using the technology. The bank reportedly aims to harness the technology to secure major cost savings across compliance, financial reporting, and clearing and settlement of fiat transactions.

Kelsey Gunderson, head of global trading at BMO Capital Markets stated:

“This is an important first step in developing a fully functional blockchain capability that we think will eventually allow primary and secondary trading of securities.”

This year has seen another bullish national first for a similar initiative on blockchain, this time for the U.S. dollar. In April, JPMorgan Chase, the National Bank of Canada and others used the Quorum blockchain platform to mirror the Canadian bank’s $150 million offering “on the same day of a one-year floating-rate Yankee certificate of deposit.”

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Goldman Sachs Leads $32 Million Funding Round for Enterprise Blockchain Startup Axon

Enterprise-focused blockchain startup Axoni has raised $32 million in a funding round led by Goldman Sachs and other high-profile banks and venture capital investors, Forbes reports August 14.

The $32 million Series B funding round was led by Goldman Sachs and Nyca Partners, with numerous other investors including Wells Fargo, JPMorgan, Citigroup, and Andreessen Horowitz. The fresh investment brings Axoni’s total financing to $55 million to date.

Axoni’s co-founder, Greg Schvey, told Forbes that the round represented not just an injection of capital but a “deep strategic” alliance, given that many of the investors are themselves innovating the traditional financial sector by turning to distributed ledger technologies (DLT), such as blockchain.

Goldman Sachs, JPMorgan and Citigroup have already successfully tested Axoni’s blockchain platform Axcore for trading equity derivatives, Forbes reports.  

New York-based Axoni, founded in 2016, reportedly plans to use the capital to help its existing enterprise clients to “integrate their own users” into three of its distributed ledger platforms, now close to completion.

The largest project Axoni currently has underway is with DTCC –– the highest financial value processor in the world, processing $1.6 quadrillion in securities transactions per year. Last year, DTCC had announced it would work with Axoni, IBM and blockchain consortium R3 to re-platform its Trade Information Warehouse for derivatives processing using the Axcore blockchain.

Other notable recent venture capital infusions into the crypto and blockchain space include $28 mln from Andreessen Horowitz and Pantera Capital for securities blockchain platform Harbor, and Rockefeller’s VC Arm Venrock’s partnership with crypto investment group Coinfund.

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JPMorgan CEO Jamie Dimon Returns to Bitcoin Bashing, Calls Cryptocurrency a ‘Scam’

JPMorgan CEO Jamie Dimon returned to his more critical comments about Bitcoin, calling the cryptocurrency a “scam” and saying he had “no interest” in it, Bloomberg reported Sunday, August 5.

Dimon was speaking at the Aspen Institute’s 25th Annual Summer Celebration Gala on Saturday, including cryptocurrency as part of general comments he made about the U.S. economic outlook.

His words were soon repeated in both the mainstream press and online by prominent economic sources, notably Nouriel Roubini, who has also become known this year for his critical stance on Bitcoin.

According to Bloomberg, Dimon further “suggested governments may move to shut down the currencies [cryptocurrency], because of an inability to control them.”

The finance mogul’s history with cryptocurrency has been chequered. Having caused a stir in September 2017 when he originally called Bitcoin a “fraud,” Dimon thereafter appeared to change tact, later saying he “regretted” his choice of words.

“I wouldn’t put this high on the category of important things in the world. But I’m not going to talk about bitcoin anymore,” he told reporters last October.

In January, Dimon kept his promise, telling Cointelegraph in private comments that he “can’t answer” when asked how he felt about moving markets with his earlier Bitcoin “fraud” comments. However, he added that he was “not a skeptic” regarding cryptocurrency.

In his recent interview published in the July-August issue of the Harvard Business Review, Dimon again refused to comment directly on crypto, reiterating “I probably shouldn’t say any more about cryptocurrency.” In the same interview, Dimon also made a point of calling blockchain technology “real,” –– while implying that crypto is not –– saying that the banking giant is “testing it [blockchain] and will use it for a whole lot of things.”

Since then, mixed signals have emerged from other JPMorgan sources, the company’s co-president Daniel Pinto telling CNBC in May that cryptocurrencies “are real but not in the current form.” He added executives were “looking into” the space at a time when fellow finance giant Goldman Sachs revealed it was working on offering Bitcoin futures.

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Jamie Dimon Says JPMorgan Will Use Blockchain ‘for a Whole Lot of Things’

JPMorgan Chase’s Jamie Dimon was bullish on blockchain tech, but shied away from commenting on cryptocurrency, saying fiat payment apps are “the biggest potential disruption to our business” in an interview published in the July-August issue of the Harvard Business Review.

When asked about his company’s chief competitive threat, Dimon, chairman and CEO of JPMorgan Chase — the largest of America’s Big Four banks — singled out what he called “new forms of payment.” Specifically naming PayPal, Venmo and Alipay, Dimon said that “these companies are doing a good job of embedding basic banking services in their chats, their social, their shopping experience.”

While he didn’t mention crypto as a potential disruptor, when he was asked about his view on cryptocurrency in a following question, Dimon simply replied, “I probably shouldn’t say any more about cryptocurrency.” Dimon did argue that crypto is “not the same as gold or fiat currencies,” which are “supported by law, police, courts […] [are] not replicable, and there are strictures on them.” Dimon also made a point of calling blockchain technology “real,” –– which implying that crypto is not –– saying that JPMorgan is “testing it [blockchain] and will use it for a whole lot of things.”

While JPMorgan’s official position on cryptocurrency and Dimon’s opinion do not always coincide, both have seen a shift over the past year. On Sept. 13, 2017, Dimon reportedly called Bitcoin a “fraud” at an investor’s meeting, along with threatening to fire any employee trading Bitcoin on the company’s accounts.

Somewhat contrary to what Dimon told Harvard Business Review in his recent interview, in an SEC filing on Feb. 27, the bank marked cryptocurrency under the report’s “Competition” subsection, saying it could “put downward pressure on prices and fees for JPMorgan Chase’s products and services or may cause JPMorgan Chase to lose market share.”

In February of this year, a JPMorgan internal report also called cryptocurrencies the “face of the innovative maelstrom around the blockchain technology.”

When speaking with Cointelegraph in Davos in January, Dimon took a stance more similar to what he told Harvard Business review, saying he “can’t answer,” but also claiming he was “not a skeptic.”

In the last few months, however, JPMorgan — and evidently Dimon — have more explicitly come out as bullish on blockchain, with the bank even filing a blockchain-related patent on May 3.

On May 17, JPMorgan announced that they had created and filled a new position of head of crypto assets strategy.

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Institutional Investors and Fintech: Will Wall Street Go Head-First Into Crypto?

Following a breakout year for cryptocurrencies, 2018 has been extremely challenging — to say the least.

With Bitcoin and numerous altcoins hitting all time highs in December, a sobering market correction followed and the markets have only started to settle midway through this year.

There have been many reasons for the cryptocurrency markets being battered by bearish sentiments across the board.

However, having passed the midway mark of the year, there are increasingly encouraging signs that institutional investors are changing their tune once again — hinting that mainstream adoption is around the corner.

Furthermore, Bitcoin has reached market cap levels last seen in December, with 46 percent of the total market dominated by the preeminent cryptocurrency. With its price holding steady around $7,500, there are signs that a bearish market may be coming to an end.

Let’s take a look at the biggest Wall Street players that seem to be laying the foundation needed to enter the crypto markets on a grand scale.

Blackrock puts feelers out

In July, Blackrock — the world’s largest exchange-traded fund (ETF) — announced that it has launched a working group to assess the potential of investing in Bitcoin.

The cross-industry working group is exploring a number of investment options, but it’s understood that Bitcoin futures are on the agenda. It marks a change in sentiment from Blackrock in particular, considering that CEO Larry Fink had described Bitcoin as ‘an index of money laundering’ in October.

Investor FOMO?

Blackrock’s move could be described as a preemptive strike to avoid missing the crypto bus. Goldman Sachs is making headway with cryptocurrency involvement and Blackrock is following suit.

While Blackrock is understood to have launched a blockchain working group in 2015, the latest move is examining what its competitors are doing in the space. Clearly, everyone is trying to suss out what their peers are doing in terms of cryptocurrency adoption.

Goldman Sachs — forging ahead

Since late 2017, there had been murmurs of the investment and banking firm launching a cryptocurrency trading desk. This was later refuted by CEO Lloyd Blankfein, although he revealed the company had invested in a crypto trading desk back in 2015.

Nevertheless, Goldman Sachs has been making inroads toward crypto adoption throughout the year. Thus, in April, cryptocurrency trader Justin Schmidt was hired by the firm in response to client interest in the space.

The following month, Goldman Sachs executive Rana Yared confirmed that the company intends to buy and sell Bitcoin — after concluding the preeminent cryptocurrency was “not a fraud.” Yared said the company ‘resonated’ with clients wishes to hold Bitcoin or Bitcoin futures:

“It resonates with us when a client says, ‘I want to hold Bitcoin or Bitcoin futures because I think it is an alternate store of value.’”

What is more, a couple of former Goldman Sachs executives have moved into the cryptocurrency space.

Former executive director Priyanka Lilaramani joined Maltese crypto startup HOLD as its new CEO in May, following 10 years of service as a director at the firm. Prior to that, former Goldman Sachs executive Breanne Madigan joined crypto wallet Blockchain.com in April.

Galaxy Digital founder Mike Novogratz also lured a former executive of Goldman Sachs, Richard Kim, to take over as CEO of the cryptocurrency merchant bank in April. It’s understood that Kim had been working on the firm’s crypto trading desk before he left.

Despite the apparent drain of crypto-inclined talent from Goldman Sachs, the company is forging ahead with its own plans in the sector.

In June, the company confirmed that it was planning the launch of a cryptocurrency derivatives trading desk. Goldman Sachs is already helping customers clear Bitcoin futures, according to COO David Solomon.

The move followed some positive comments from Blankfein in an interview with Bloomberg in June. The CEO postulated that Bitcoin and cryptocurrencies could well be adopted by mainstream institutions, just like paper money replaced gold and silver coins:

“I look at the evolution of money, we started out with gold as money. A gold coin was worth $5, if you had $5 of gold. Eventually they would give you a piece of paper with the promise that there was $5 of gold to back it, and you could go and redeem it.

“Then they gave you a piece of paper and said there is $5 worth of gold, but you can’t redeem it. And then at some point they gave you $5, they’re not going to redeem it and they don’t even have the $5 even if you wanted to. We’re still doing that today and I see that morphing.

“If you could go through that fiat currency, where they say this is worth what its worth because the government says it is, why couldn’t you have a consensus currency.”

JPMorgan Chase — forgetting tulips

U.S. banking group and financial services firm JPMorgan Chase has had a love-hate relationship with cryptocurrency for the past few years.

CEO Jamie Dimon infamously slammed Bitcoin in 2017, comparing the cryptocurrency to the tulip mania while labelling it a fraud. He went as far as threatening to fire any company traders who were selling BTC on behalf of clients.

What ensued in the months after can only be described as bipolar, as the company announced that it would consider offering clients access to the Chicago Mercantile Exchange’s Bitcoin futures market, which was launched in December.

Dimon seemed to change his tune early in 2018, saying he regretted his comments in 2017 while maintaining that he had a “lack of interest” in the space. A few weeks later, the CEO refused to answer questions posed by Cointelegraph at the World Economic Forum, saying he is not a “skeptic” of cryptocurrencies.

In February, the company then delivered its annual report to the SEC, in which it labelled cryptocurrencies as competition and a risk to its business.

“Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”

The company said it could be forced to adapt its products to retain customers, while stressing that it could eventually lose market share.

This apathy seems to be slowly changing, as the company began to make moves that seemed to hint it would begin to embrace that blockchain technology was here to stay.

A long-standing blockchain-based project, Quorum, was formed in 2017 in partnership with the Ethereum Enterprise Alliance. It has a number of global conglomerates involved, and is essentially an Ethereum platform aimed at serving the needs of larger enterprise businesses looking to make use of distributed ledgers and smart contract technology.

As a private blockchain project, Quorum’s success shows that the benefits of blockchain technology have not gone unnoticed by the heavyweights of the financial world. Quorum’s popularity eventually led JPMorgan Chash to consider making it a separate business entity, to attract more partners and drive the development of further blockchain-based business solutions.

In May, the company also filed a patent for a peer-to-peer (p2p) payment system using blockchain technology for intra and inter-bank settlements. At the same time, the firm created and filled the role of head of crypto-assets strategy.

It’s understood that Oliver Harrris, the man chosen for the role, will pioneer new crypto projects at the bank — as opposed to setting up active trading of cryptocurrencies. The company will look into crypto custody services and blockchain applications for JPMorgan Chase’s payments services.

All in all, the company has kept cryptocurrencies at an arm’s length while embracing the benefits of distributed ledger systems to improve its own services.

That attitude toward cryptocurrency was evident in the fact that the bank banned customers from using its credit card facilities to buy crypto. The company even faced a class action lawsuit after customers complained that they were being charged exorbitant fees for buying crypto with credit cards.

While this could leave a lot to be desired, the company seems to be grappling with conflicting views on the industry. It sees the value in blockchain technology, but seems to be staying well clear of actively trading or facilitating such services for its clients.

Morgan Stanley

Morgan Stanley has also had an interesting journey in tandem with blockchain technology and cryptocurrencies.

The company has seemingly begun weighing in more heavily on the subject in June 2017 — Bitcoin, in particular. Amid the steadily rising price of the cryptocurrency, Morgan Stanley released a statement suggesting more regulatory clarity was needed amid an influx of interest from clients.

“Governmental acceptance would be required for this to further accelerate, the price of which is regulation.”

Around the same time, it emerged that Morgan Stanley had been using blockchain-based platforms to process transactions and backup records as early as March 2016.

As things heated up into the tailend of 2017, Morgan Stanley CEO James Gorman lent an optimistic voice in October, countering the likes of Dimon, calling Bitcoin ‘more than just a fad’:

“I haven’t invested in it. I’ve talked to a lot of people who have. It’s obviously highly speculative, but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.”

He did change his tune a few weeks later, warning investors that the massive spike in value was nothing but “speculative.”

“Something that goes up 700 percent in a year — it’s, by definition, speculative. So anybody who thinks they’re buying something that it’s a stable investment is deluding themselves.”

The company was somewhat quiet over the next couple of months. Following a spiralling bull run that ended in a humbling market correction, Morgan Stanley then announced that it was helping clients clear Bitcoin Futures contracts.

In March, the company told clients that Bitcoin was similar to the Nasdaq, but moving ‘15x’ faster. Furthermore, Morgan Stanley speculated that financial markets would move toward the use of crypto in the future:

“Over the coming years, we think that the market focus could turn increasingly toward cross trades between cryptocurrencies/tokens, which would transact via distributed ledgers only and not via the banking system.”

As recently as August, Morgan Stanley hired a cryptocurrency trading expert to head up its digital assets department.

Auditing firms

It is also worth noting that auditing firms have taken a keen interest in blockchain over the last 12 months.

Big players like PwC, Deloitte and KPMG are actively using different blockchain technologies in various ways.

This goes to show the diverse applications of blockchain technology — not only for payments, but for auditing, storing value and an almost limitless list of possibilities.

Talking timelines

While these mainstream firms clearly have different plans for their involvement in the cryptocurrency markets, there seems to be an overarching feeling that most are moving toward adoption.

Therefore, it becomes a question of when — not if — we will see institutional investors climbing into the markets on a grand scale.

Having previously worked at Goldman Sachs for 10 years, Novogratz has an intimate knowledge of the investment banking world. In an interview on July 19 at a blockchain conference in South Korea, Novogratz suggested that full-on mainstream adoption on a grand scale is still more than five years away. However, people could expect to see many more financial institutions gradually enter the markets in the next few years.

According to Novogratz, big money investors are still skeptical of putting large sums of money into the space due to a perceived lack of trust:

“Think about how institutional investors operate. It’s hard to tell your boss ‘I have money in places you have never heard of.’ You need a trusted, name custodian — a Japanese bank or HSBC or ICE or Goldman Sachs — to allow institutional investors to feel comfortable.”

Blockchain.com founder and CEO Peter Smith told Bloomberg in an interview in July that the most recent moves in the cryptocurrency markets indicate a “consolidation” of the markets:

“I think now in the market, you have a lot of regulatory clarity that didn’t exist even a year ago. You have different types of order flow — you have retail and institutional. As that institutional flow increases critically with the roll out of new institutional products, you’ll see more of a level off and consolidation in the market.”

Smith went on to say that institutional investors are currently entering the market, which could have an influence on the recent resurgence in the price of Bitcoin. However he also cautioned that people would only notice the full effect of this midway through 2019.

Anthony Pompliano, founder and partner at Morgan Creek Digital Assets, told Cointelegraph that mainstream financial institutions are naturally drawn to areas of interest, especially when it concerns the client’s wants and needs.

“Large financial institutions are capitalistic in nature. They are interested in serving their customers — who want to make money — while driving better financial performance for themselves. As more customers look for Bitcoin, cryptocurrency and digital asset products, these financial institutions will be forced to participate.”

However, Pompliano also believes that the cryptocurrency space will continue to develop at its own pace over the next few years:

“Bitcoin and cryptocurrency will continue to grow with or without the support of the legacy financial players. With that said, the markets benefit from the sophistication and size of their participation.”

What of ETFs?

The approval of a Bitcoin exchange traded fund (ETF) has been chased by a number of industry players over the past few years.

Most notably, the Winklevoss twins applied for approval of a Bitcoin ETF in 2017, which was turned down by the SEC. Once again, on July 26, the SEC rejected the twins’ second effort to launch an ETF.

That hasn’t ruled out the possibility of ETFs being approved for other financial institutions in America.

Investment firm Direxion had the review of it’s ETF application pushed out until Sept. 21. The SEC will deliver it’s ruling on that date, giving itself more time to consider that application more closely.

Nevertheless, the move keeps everyone guessing as to what could happen once the market has its first Bitcoin ETF. As Pompliano suggests, the potential approval could have a marked effect on the cryptocurrency markets:

“The approval of a Bitcoin ETF would have a very positive impact on the crypto industry. The main advantage is less friction for the mass retail consumer to purchase Bitcoin, without having to deal with the complexities of digital wallets and exchanges. If the introduction of Gold ETFs to the gold market is any indication, we should anticipate a large inflection point post-Bitcoin ETF.”

Once again, the crypto world will wait for this latest development to get a full understanding of the possibilities and implications. Until then, the current resurgence of Bitcoin seems to be a sum of all of these different factors, following a difficult six months in 2018.

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Morgan Stanley Hires Credit Suisse Crypto Expert as Head of Digital Asset Markets

Multinational investment bank Morgan Stanley has hired a self-described crypto trading expert and 12-year veteran of Credit Suisse as its new head of digital asset markets, eFinancialCareers reported July 31.

The new appointment, Andrew Peel, spent his last three years at Credit Suisse as vice president of sales and trading innovation, in which role he acted as “trading subject matter expert for Bitcoin and cryptocurrencies” according to his LinkedIn profile. His page also includes an independent position as “advocate of crypto markets” as of June 2013.

Nabbing a crypto enthusiast for its team aligns with Morgan Stanley’s evolving stance towards the nascent industry, which has been notably more moderate than that of other traditional financial sector behemoths.

In fall 2017, JPMorgan CEO Jamie Dimon scathingly characterized Bitcoin (BTC) as a “fraud” that is “worse than tulip bulbs,” a sentiment closely echoed with somewhat less vitriol by Credit Suisse CEO Tidjane Thiam’s claims that Bitcoin is “the very definition of a bubble.”

In contrast, Morgan Stanley’s CEO James Gorman remarked around the same time that while Bitcoin is undeniably “highly speculative,” the privacy it offers is an “interesting” challenge to the central banking system, further considering the asset to be a “natural consequence” of blockchain innovation.

Morgan Stanley has also notably been clearing Bitcoin futures for its clients as of mid- January 2018, just a month after their December 2017 debut on CME and CBOE.

A rising tide of figures who have decamped from the traditional financial sector to become crypto and blockchain industry front runners was recently revealed in the first-ever crypto-focused version of Fortune’s “40 under 40” honor roll for the most influential young disruptors in global finance and technology.

Among these were Goldman Sachs’ Rana Yared and Justin Schmidt for spearheading the Wall Street giant’s future Bitcoin trading operation, as well as Amber Baldet, who left her former position as blockchain program lead at JPMorgan to co-found her own blockchain venture.

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FX Settlement Provider CLS Begins Final Testing for Blockchain Payment Banking Service

Forex exchange (FX) settlement giant CLS is in the final stages of testing its blockchain payment service for banks, Financial News reported July 27.

The service is reportedly set to be launched later this summer, with at least seven banks expected to sign on to the system in the early months.

CLS, the New York-based global multi-currency cash settlement system, has been working with tech company IBM to introduce the blockchain-powered payment netting service. The system is set to be incorporated in banking IT systems to boost the level of standardization in the global FX markets, as well as reduce costs of the process.

At the moment, the FX markets are reportedly lacking standardization as forex institutions are forced to complete the process manually, which often causes scattered approaches to netting and leads to higher costs, the Financial Times notes.

CLS is planning to offer its members two options to connect to the CLSNet service, providing a direct, as well as an intermediary, connection via the SWIFT financial messaging provider. However, a CLS spokesperson clarified that clients would rely on the SWIFT provider in the first stages, while direct node hosting will be offered as “the service continues to grow with functionality and client adoption, and the DLT [distributed ledger technology] matures.”

While around seven banks are ready to test the upcoming service, they are reportedly just half of those that backed the project originally. CLS chief strategy and development officer Alan Marquard revealed that some of their big banking members are cautious to connect directly to the blockchain since the technology is still not tested enough for settlement and safekeeping of securities.

Marquard explained that banking institutions cannot “just install a piece of software,” as they first need to “build operational knowledge and know-how” to ensure their databases have adequate privacy protection.

CLS Group, originally Continuous Linked Settlement, is a U.S. FX settlement service supplier with such high-profile members as Goldman Sachs, JPMorgan, Barclays, and Citigroup. In late May, the company invested $5 million in blockchain consortium R3 in order to collaborate with leading blockchain experts.

SWIFT, with 45 years of experience in providing financial institutions with transactions information, has recently reported that its blockchain pilot for bank-to-bank transfers went “extremely well,” having first announced the Hyperledger-based project for a cross-border payments market back in 2017.

Earlier in June, Ripple (XRP) chief cryptographer David Schwartz claimed that banks are unlikely to deploy blockchain to process international payments, citing low scalability and privacy problems.