Bitcoin Responds to JPMorgan's Blockchain Ambitions: A Game Changer?

JPMorgan Is Exploring Blockchain-Based Deposit Token for Payments, Settlements

Disclaimer: This blog is just for educational and informative purposes and should not be considered an investment or trading advise

Key Takeaways:

  • JPMorgan's Innovation: JPMorgan's groundbreaking blockchain-based deposit token, pending regulatory approval, has the potential to transform cross-border transactions and marks a significant milestone in the financial industry.
  • Impact on Crypto Market: Institutions like JPMorgan embracing blockchain technology are likely to boost the cryptocurrency market, historically benefiting from banking crises, as investors explore digital assets like stablecoins.
  • Regulatory Challenges: While JPMorgan's move is promising, regulatory hurdles remain a significant factor in the development of public blockchain deposit tokens, and banks must secure approval before proceeding.

Bitcoin has a long history of responding to changes in the banking industry. A recent development on September 8th suggests that JP Morgan, a prominent financial institution, is preparing to make a significant impact on digital finance. According to a recent Bloomberg report, the bank is on the verge of completing a groundbreaking blockchain-based deposit token, pending approval from U.S. regulators.

Finally Blockchain in Banking: A New Start!

Blockchain in Banking

In contrast to stablecoins issued by non-bank entities, JPMorgan’s new token will be introduced by a traditional depository institution. This token will complement JPM Coin, which is currently limited to transactions within the bank itself. However, the new token will enable transactions not only within JPMorgan but also with other financial institutions, particularly for settlements involving tokenized securities.

A milestone completed

Monetary Authority of Singapore

Following a successful pilot project with the Monetary Authority of Singapore last year, this breakthrough demonstrates substantial progress. The token, like JPM Coin, will enforce strict compliance, including thorough customer verification and anti-fraud measures. JPMorgan’s foray into blockchain-based deposit tokens is a significant milestone, not just for the bank, but for the wider financial industry. Subject to regulatory approval, this innovation stands to revolutionize cross-border transactions.

Crypto to Get A Boost - JP Morgan's Game-Changing Move

Banking Crisis

Historically, crises in the banking sector have had a positive impact on most cryptocurrencies. These crises tend to bolster confidence in digital assets, as investors explore stablecoins as alternative investments. The encouraging news is that institutions like JPMorgan opening the doors to blockchain technology will likely bolster the crypto market. As an example, Bitcoin experienced a surge from $27,000 to over $28,000 on March 19 due to an issue involving Credit Suisse. JP Morgan is exploring a blockchain-based deposit token for cross-border funds. It says the financial institution wouldn’t create the token without approval from U.S. regulators. JP Morgan plans to make use of the product for company shopper transactions within a year of receiving the go-ahead.

The Speedy Revolution

Cross-Border Payments

The key advantage of deposit tokens for cross-border funds is the speed of cross-border settlement and their 24/7 nature. Nowadays, SWIFT payments are fast. However, they often involve intermediaries and SWIFT only sends messages. So, the recipient bank needs to be open to make the actual payment, which is difficult across time zones. In contrast, with digital tokens, there isn’t any separation of the message and the money, and the transaction can happen regardless of opening hours.

What Kind of Deposit Token?

A key question is what kind of deposit token is the bank talking about because it’s not entirely clear in the Bloomberg report. We suspect this is a public blockchain deposit token.

JP Morgan’s Onyx division talks about three types of deposit tokens. One is for payments within the bank (JPM Coin). Another is for interbank payments on a shared ledger (Partior). And the third is for interbank payments on a “common” ledger or a public blockchain.

Regulatory Hurdles?

Office of the Comptroller of the Currency (OCC)

JP Morgan obtained a non-objection letter from the Office of the Comptroller of the Currency (OCC) to use the Partior network. Partior is an interbank deposit token network for cross-border payments that aims to target corporate payments. Confirmed participant banks are DBS Bank and Standard Chartered. We believe Deutsche Bank and Japan’s SMBC are also joining the Partior network, although there has not been a formal announcement. In May, sources close to Deutsche Bank said no decision had been made.

Currently, many regulators are much more cautious about public blockchains. The USDF Consortium has tried to get U.S. clearance for bank deposit tokens, and it switched from a public to a private blockchain to appease regulators.

Why Now?

Regulated Liability Network (RLN)

There are two potential reasons for highlighting JP Morgan’s plans now. Earlier this week, another deposit token initiative, the Regulated Liability Network (RLN), revealed it’s working on extending trials in the UK following a U.S. trial a few months back. Both trials attracted quite a bit of attention. Citi initiated the RLN.

A less likely motivation is the stablecoin regulations progressing in the United States. While deposit tokens are quite different from stablecoins, the current version of the legislation mentions deposit tokens indirectly.

It includes a clause stating the Stablecoin Act should not be construed as limiting the authority of banks and credit unions involved in:

(1) accepting or receiving deposits and issuing digital assets that represent deposits;

(2) using a distributed ledger for the books and records of the entity and to affect intrabank transfers;

However, not limiting a bank’s authority is not the same as giving it permission. And for now, the OCC and Fed require banks to get the all-clear before proceeding with deposit tokens.

At the time of writing, BTC is currently trading below $26,000. Check the current Bitcoin Price here.

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Q1: What is JPMorgan's new blockchain-based deposit token, and what sets it apart?

A1: JPMorgan is developing a blockchain-based deposit token that, if approved, will revolutionize cross-border transactions. What sets it apart is that it will be introduced by a traditional bank and enable transactions not just within JPMorgan but also with other financial institutions, particularly for tokenized securities settlements.

Q2: How might JPMorgan's entry into blockchain impact the crypto market?

A2: Historically, banking crises have boosted confidence in cryptocurrencies. JPMorgan's move into blockchain technology is expected to bolster the crypto market by offering new opportunities and validation for digital assets.

Q3: What challenges does JPMorgan face in implementing public blockchain deposit tokens?

A3: JPMorgan must navigate regulatory challenges, as public blockchain deposit tokens are subject to scrutiny. While the OCC has given a non-objection letter for certain activities, banks still need approval from regulators like the OCC and Fed before proceeding with deposit tokens on public blockchains.