JP Morgan still has Cryptophobia

It may have seemed that with the announcement of the JPM Coin, the banking giant had overcome its ‘cryptophobia’. However, I cam across a story last week that indicates it is still some way from showing crypto the love.

Cryptoraves, a company that is working on the tokenization of social media, had its bank account shut down last month by JP Morgan, without any explanation whatsoever.

In the long run, JP Morgan told them they were working in a “prohibited industry.” But that is as much information as Cryptoraves could wring out the stone that is the bank.

Cryptoraves was surprised to receive a letter saying, “After a recent review of your account, we have decided to end our relationship with you.” That is like ending a relationship by text. It is rather harsh, all the more because it doesn’t provide any reason for the break-up. Who wants a bank that treats its customers like this?

And is Cryptoraves really operating in a “prohibited industry”? Go to its website and the first thing you see is that you can get “FREE TOKENS.” People use the tokens to boost their credibility on social media. For example, a Twitter user can request free tokens and send them to other Twitter users. The tokens have no actual value, therefore they are not securities in the regulatory sense.

Cryptoraves has published an assessment of where it thinks the issue with JP Morgan arose: “We did send two wire transfers to Gemini to buy ETH and LOOM in order to cover future blockchain fees. We suspected that these transactions flagged our account, but the Chase rep would not confirm this. They would not give us a reason for the closure. We called the number in the letter and the agent told us to visit a branch for these details. Visiting our branch resulted in no other details except when our branch rep pressed the agent (yep as the primary course of action, our rep called the same phone number), they said we were operating in an ‘prohibited industry’. I guess JPM’s own blockchain department didn’t get the memo?”

Furthermore, Cryptoraves had had a 15-year relationship with the bank and praised its service. There is a suggestion that the timing of the account closure is connected to the launch of the JPM Coin, but that may just be a bit of a conspiracy theory. What is clear though is that banks are still making it difficult for crypto-related companies and crypto owners, especially when something as innocuous as a transfer can result in your account being closed.

JP Morgan surprises us with a stablecoin

When JP Morgan announced the launch of its very own stablecoin, the industry was somewhat shocked. Was this not the big bank that loathed cryptocurrencies? The move got people excited, both in traditional banking and in the crypto community. But is the JPM Coin really as big a deal as everyone seems to think it is.

Naturally, the industry pricks up its ears when JP Morgan speaks, and any of its previous explorations of the blockchain have produced similar interest. As Ben Jessel, head of enterprise blockchain at Kadena remarks, “In the last few weeks, blockchain innovation managers’ phones across Wall Street investment banks have been ringing with executives inquiring about JP Morgan’s stablecoin and how they should be responding.”

That’s because enterprise blockchain technology has been the way that big companies have sought to harness blockchain technology to meet their needs as large organisations. JP Morgan’s move has made others question what to do next — is this the time to jump in and be first in the fast-follower line?

Initially, the JPM Coin seems exciting, because it suggests that Wall Street is beginning to “blur the lines between institutional banking and the brave new world of cryptocurrency,” as Jessel suggests. But the reality is not so simple.

Faster, cheaper settlements

JP Morgan’s stablecoin seeks to solve two problems in financial markets today: the expensive and inefficient process of settlement and the volatility involved in holding money in cryptocurrency. Settlement is expensive for banks for a number of reasons: first, payments are rarely made in real-time, which means that in many cases funds that should be paid are not actually made available until the end of the day. For the banks, this means billions of dollars can be tied up and can’t be used.

Blockchain speeds the process up, making the process less expensive for banks and reducing the liquidity trap, i.e. funds being tied up in the process of settlement.

JP Morgan’s stablecoin neatly connects the dots between the aspects of settlement and volatility management by providing digital cash that can be used and enabling the ability to redeem the coin at a stable rate. This may sound like a big deal, but in fact all it means is that any counterparty would be paid by JP Morgan issuing a digital certificate. At its most fundamental, JP Morgan is promising to credit the account of a user when presented with a digital certificate that has a redemption value of a dollar.

Having said all this, JP Morgan’s new ‘Coin’ is not an insignificant development. Don’t forget, this is an industry where they still use fax machines, so in that context, the JPM Coin is actually a pretty big deal.

Crypto buyers need to take the long view

Are you a crypto investor? Perhaps you bought in during the later part of 2017, or even early 2018, hoping the wave of euphoria around cryptocurrencies would keep carrying on. Unfortunately for those people it didn’t, and even those who bought in earlier will have made some losses.

A number of people thought the downturn in the market was temporary; it would be moving upwards again before Christmas 2018 some market watchers said, with a some of the bulls, like Tom Lee, predicting a bitcoin value of over $20,000. It hasn’t happened, but that doesn’t mean that it is the end of bitcoin or other cryptos. What has happened is that the technology needs to catch up with the enthusiasm for digital assets, but technology is still too new and complicated, most consumers see it as too risky. Plus, there is the not inconsiderable matter of mass adoption being some way down the road.

So, what should crypto investors do, or have done in the past year. Some are holding on, waiting for the return of a bull market, while others are looking for an acceptable moment in which to exit the market.

Crypto investing has been a bit of an education for those people who have never put money into stocks, bonds or securities before. It offered an opportunity for those with a few hundred, or a few thousand, to become involved in a market that up until now has been reserved for approved investors; those with millions and billions in the bank. However, newbie crypto investors didn’t perhaps realise that all markets are a dangerous place to be in unless you do your homework and have certain ‘safety jackets’ in place.

If you look at the established investment markets, they all have a swathe of regulations in place that give the investor specific ownership rights. By contrast, the crypto market is uncharted territory. There have been some moves by regulatory bodies to create a set of regulations and guidelines, but they are still sketchy, and the judicial system has not yet weighed in to give its approval of regulations in a number of jurisdictions.

For that reason, cryptocurrency investors have few, or no, rights until a government and its legislature says so. There are investors who are hoping the price of a crypto can be pumped, which would be a disastrous move, because manipulation will lead regulatory bodies like the SEC to deem a token is a security, and if it is, then the project issuing the token must go through a lengthy and expensive process to register it as a security, at least that is the case in the USA. For many projects that would spell the end.

People buying into crypto need to be patient and think in the long-term, because there are no instant wins now. As Joseph P. DiPasquale writes: “Now more than ever, cryptocurrency purchasers need to support projects with strong fundamentals: competent, capable leadership; a track record of meeting roadmap milestones; unique technical goals and achievements; a broad potential user base; and a relatable vision of the future.”

How Satoshi changed world

As the global economy staggered, fell and got up again, an anonymous person, or group of people, named Satoshi Nakamoto came up with a surprising solution; a peer-to-peer electronic cash system, which became known as bitcoin. A small number of people saw its potential the minute they heard about it, but it has taken a much longer time to get the concept into the wider mainstream, and even now, there are as many doubters as believers, probably even more.

What some people have not grasped is that Satoshi created much more than a digital currency that could ‘protect’ the public from the greed of the big banking system that had brought much of the world to its knees — Satoshi solved a longstanding computing problem connected to data and networks, and that is just as important as whatever is happening to the bitcoin price.

Satoshi’s solution involved an infrastructure consisting of “blocks” of confirmed transactions, which when ordered chronologically formed a “chain.” And there we have it — the real Satoshi revolution — blockchain technology.

Bitcoin is just the first example of the use of blockchain, but it certainly hasn’t been the last. In the last two years, the number of blockchain-based projects, platforms and their accompanying digital assets, tokens or cryptocurrencies, call them what you will, have grown like daisies on a summer lawn. And the ecosystem is changing rapidly: one only has to look at what was happening in 2017 and compare it with 2018 to see that the blockchain world changes every month.

A change in crypto speak

As does the language used to describe it. The negative view of the mainstream media and the response of Facebook and Google to Initial Coin Offerings (ICOs) meant that marketers and writers started to avoid the use of the term “cryptocurrency,” and so “tokens”, “digital assets” and “digital currencies” became the preferred terms, so that the anti-crypto “police” wouldn’t spot what we were actually talking about. And now the term “blockchain” is apparently being dropped in favour of “distributed ledger technology” (DLT) because apparently blockchain has been over-hyped. It appears that some think that words have the power of a Cloak of Invisibility; only to find that there are more than a few people who can see right through it.

Project Crypto Fear

And even this language factor points to the importance of Satoshi’s revolutionary creation: things that are feared by the majority have to be presented in more palatable ways. The mainstream media has certainly pushed a Project Fear approach to crypto, and here is the reason: Satoshi’s blockchain takes away the power of a central authority. This is one of the reasons why the major financial institutions have been slow to get involved with it, and some governments have banned it, while others look at it with a raised eyebrow. But they can’t hold back the tide that is coming their way, which is why the World Economic Forum predicted even back in 2016 that 10% of global GDP would be stored on blockchains.

And in 2018 we have seen central banks, retail banks and financial regulators finally joining the blockchain sphere. They have to join the Satoshi revolution or face going the way of the dinosaurs.

Satoshi Nakamoto set in motion a world-changing technology, and bitcoin is only one small part of the story; it’s certainly not the entire revolution.