Will JPM Coin Challenge the Top Cryptocurrencies?

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Written By
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Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

JPMorgan Chase recently came out with news they are starting their own form of cryptocurrency, conveniently termed “JPM Coin”. It will be backed by USD on a 1-for-1 basis.

JPM Coin is part of the same “stable coin” concept in the cryptocurrency sphere like Tether and USD Coin (“USDC”). Tying cryptocurrencies to a stable fiat currency like USD is designed to avoid volatility, which is a big inhibition behind their use as a currency. For currencies to have value they need to have two properties:

1) a medium of exchange

2) a store hold of value

Since you can’t use cryptocurrencies to buy very much, they don’t work very well as a medium of exchange. Given the volatility of cryptocurrencies as an asset class, they don’t work very well as a store hold of value either. They perform poorly on both metrics. Even something like gold, while a poor medium of exchange, acts as a store hold of wealth, which helps support its value.

What sets JPM Coin apart?

JPM Coin proposes to be something different from the mainstream options and is not a traditional cryptocurrency altogether given it won’t trade on a public exchange. First, it is sponsored by JPMorgan Chase, the largest US financial institution by asset value and one of the largest banking institutions in the world. Therefore, it doesn’t have near the same level of counterparty risk associated with cryptocurrencies trading on startup exchanges. Many of these have been plagued by fraud, bankruptcy, cybersecurity issues.

JPM Coin is a payment method involving an what the bank characterizes an “instant value transfer”. Part of the general cryptocurrency phenomenon is reflective of the fact that modern payments systems are too slow and cross-border payments are inefficient. Payments can take days, and sometimes weeks, to transfer. Theoretically, there is no reason why money can’t transfer at the same speed as information. Yet wire transfers are still standard banking technology.

Can JPM Coin pose a challenge to Bitcoin, Ethereum, and other names?

For now, the answer is that JPM Coin is not direct competition with bitcoin, ethereum, and other mainstream cryptocurrencies.

JPM Coin is currently available only to JPM’s institutional clients. Namely, it presently serves as an internal payment system that requires permission to join. It doesn’t operate on a public network like all the popular traditional cryptocurrencies. Only large corporate clients can use the network to transfer payments to each other, and only if both/all parties involved are also JPMorgan clients with access.

JPMorgan is using it as a way to try to expand their banking ecosystem by creating network effects. It is unknown when JPMorgan could roll out JPM Coin for the broader public (e.g., retail banking clients), but likely not until it proves successful among their largest banking clients.