Cryptocurrencies face significant changes

19 Feb 2019 14:31|Bartosz Grejner

"In the middle of February one of the largest banks, J.P. Morgan Chase, revealed that it has created its own cryptocurrency - JPM Coin. This may bring a breakthrough in the banking system," writes Bartosz Grejner, Conotoxia Analyst.

In the coming months, JPM Coin will enter the trial phase and will only be used for a fraction of the US bank's transactions. However, the potential is substantial. According to J.P. Morgan Chase's data, at the end of Q4, 2018, it had assets under management (AuM) worth approximately 2 trillion USD. In turn, CNBC reports that it moves more than 6 trillion USD every day for the largest corporations for its payments business. To compare, the capitalisation of the entire cryptocurrency market currently amounts to approximately 134 billion USD, i.e. only a small part of what the bank actually manages.

According to the information provided by Umar Farooq, Head of Blockchain Initiatives at J.P. Morgan, quoted by CNBC, the bank's cryptocurrency will have three functions. These will include payments for large corporate customers, as well as securities transactions and treasury services for the bank's largest clients. Retail customers will probably never see the bank’s new token.

JPM Coin is not a standard cryptocurrency. The bank remains both an intermediary and a supervisor of the transaction and it is the lack of these features that distinguishes the vast majority of cryptocurrencies in the market. The US bank's product is supposed to be similar to a stablecoin - a JPM Coin unit is worth one dollar.

Is the implementation by J.P. Morgan Chase of its own internal cryptocurrency positive for the decentralised cryptocurrency market? On the one hand, such a movement of a large financial institution, whose clients are the greatest companies in the US, is positive for the virtual currency. Probably, it reinforces the position of the cryptocurrencies in the global banking system. On the other hand, virtual currencies used in the banking system will most likely be relatively hermetic and isolated from the market of other cryptocurrencies.

Over time this may drain a large part of bitcoin’s and altcoins’ potential, and the largest financial institutions can take over most of the flows, including retail flows. As a result, "traditional" cryptocurrencies could become relatively niche, and their number would start to decrease dramatically - today there are more than two thousand of them. Of course, this is a very extreme scenario and could not come to fruition. It can be said, however, that there’s a very high probability that fundamental changes for cryptocurrencies are just around the corner. In the short term, information about a bank cryptocurrency may have a positive impact on prices, as the market has waited a long time for any stimulus that could pull it out of lethargy. However, in the course of the next year and more, virtual currencies, as we know today, may face significant changes.

19 Feb 2019 14:31|Bartosz Grejner

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