JP Morgan Chase surprised the crypto market today with the news that it has launched a stablecoin.
The investment bank is the sixth-largest in the world and its bold move is likely to be copied by others. It could also be a threat to Ripple, or a godsend.
The new coin, called JPM Coin, will be used to power intra-client payments.
Being a stablecoin, the cryptoasset will be pegged to the dollar 1:1 and is set to revolutionise corporate payments, which currently can in some cases take days to settle and certainly hours.
JPM Coin would make real-time settlement a reality and trials are starting in the coming months, according to a report on CNBC.
Umar Farooq, the bank’s head of blockchain projects, says the company intends to start small as it tests out the new technology.
Farooq sounded pumped, as you might expect.
“So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction. The applications are frankly quite endless; anything where you have a distributed ledger which involves corporations or institutions can use this,” Farooq said in comments to CNBC.
He highlighted three immediate use cases: international payments between large corporations; securities transactions; and treasury services for client corporations.
The bank’s launch of JPM Coin could herald the beginning of the end for the decades old SWIFT payments messaging system.
JPMorgan handles around $6 trillion of money flows on a daily basis.
The implications of JPMorgan’s move are huge with its banking peers sure to follow suit.
Existential threat to Ripple or Godsend?
However, there are implications for the crypto industry itself, in particular the likes of Ripple which is targeting precisely the area that JPMorgan has designed its own in-house solution for.
JPMorgan pulled back from collaborating with other firms when it left the RS consortium back ins 2017 and this latest initiative may be sending a shiver down the collective spine of the leadership team at Ripple.
However, it could also work to Ripple’s advantage by waking up the sceptics to the blockchain possibilities, and for those firms much further behind in their blockchain development, an off-the-peg solution from Ripple may be the way to go.
Ripple has partnerships with around 200 banks and other financial institutions, many of whom have conducted trials and pilots on its xCurrent system. However, the product that uses the XRP token for liquidity – xRapid – has seen slower progress.
Ripple may even respond to the JP Morgan stablecoin by developing one of its own to broaden its pitch and overcome the resistance to XRP because of the volatility associated with cryptocurrencies.
Also those companies behind the flurry of stablecoins launched in recent times could also find their general purpose use cases narrowed if more large banks decide to go it alone with their own cryptoassets. JPM is deploying its own internally engineered blockchain platform – Quorum developed with a number of partners.
Stablecoin validation
Facebook recently announced that it was building a stablecoin for use in Whatsapp to power payments on the messaging platform, with a rollout expected to begin in India.
Iqbal V. Gandham, UK Managing Director of eToro, the global, multi-asset, investment platform, thinks the JPM Coin is a validation of stablecoins:
“This is an early indication that 2019 could be the year of the stablecoin. There is a substantial amount of time and effort pouring to the development of stablecoins, and we’re excited to see where this leads.”
He continued: “In the short-term, this proves that the underlying technology and concept of stablecoins is viable. They are an attractive option to those who want to explore the world of cryptoassets. This development is also testament to the growing interest from traditional players and their clients.”
JP Morgan out in front
JPMorgan has certainly stolen a march on its competitors and those companies making use of its systems will not just see their costs reduced but could also be in a position to put their cash to much better use, as Farooq set out.
“Money sloshes back and forth all over the world in a large enterprise. Is there a way to ensure that a subsidiary can represent cash on the balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it.”
Multinational corporations such as Apple, Facebook, GM etc all need to have cash moving around between their subsidiaries within and across borders so that they can – among other things – pay suppliers and employees.
And JP Morgan doesn’t appear to be phased by being an outlier. Even if other companies and banks don’t follow in its wake, its business is so large in and of itself that it makes crypto adoption worth going ahead with.
Farooq again: “Pretty much every big corporation is our client, and most of the major banks in the world are, too. Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back.”
JP Morgan Chief executive Jamie Dimon is well-known for his dismissal of all things crypto. He famously once said he doesn’t “give a shit about bitcoin”.
