The prospect of negative interest rates has forced Wall Street to look for alternatives to traditional foreign exchange carry trades.
Not long ago, JPMorgan CEO Jamie Dimon called Bitcoin “a fraud.” Now JPM will begin providing banking services to two cryptocurrency exchanges, Coinbase and Gemini, setting a precedent among large US banks for serving crypto-industry clients.
“JPMorgan’s extension of banking services to cryptocurrency exchanges is the tip of the iceberg,” Edward Moya, a market analyst with OANDA, tells Global Finance. He expects other banks to follow suit and “the fintech industry will see another boom here, as traditional financial institutions continue exploring alternative digital assets.”
The prospect of negative interest rates has forced Wall Street to look for alternatives to traditional foreign exchange carry trades, explains Moya. “Bitcoin’s fundamental backdrop has changed, as faltering demand for modern government-backed currencies and high skepticism about the recent rebound in equities has traders looking for risky bets that could have big payoffs.”
According to University of Texas finance professor John Griffin, “The JPM relationship with Coinbase and Gemini will be closely tracked by other banks.” Based in the US, the two fintechs are among “the most straight-and-narrow exchanges” from a regulatory standpoint, which doubtlessly made the relationship easier for JPM to swallow. Most crypto exchanges operate offshore as unregulated entities, and many have been dogged by allegations of fraud and money laundering.
At present, an estimated 36.5 million people in the US own cryptocurrencies like Bitcoin. Forbes’ 2020 list of the 50 Most Innovative Fintech Companies included six firms described as “Blockchain & Bitcoin” (Coinbase was one); the entire insurance sector placed only seven. Meanwhile, hedge fund manager Paul Tudor Jones said in May that 1% of his assets were now in Bitcoin as an inflation hedge. All this suggests to Moya that “Bitcoin seems to have a path, as institutional interest grows.”
A year ago, no major bank wanted to be the first to offer banking services to cryptocurrency exchanges. “Now you will see that no one wants to be the last bank to join the crypto party,” says Moya.