JPMorgan’s Farooq: Banks Will Win Crypto Asset Cycle

As a competitor with, and even as a threat to, traditional financial institutions (FIs), cryptocurrency has a long way to go, the head of JP Morgan’s blockchain division said.

Yet this nascent asset class has far too much disruptive potential to be ignored, said Umar Farooq, managing director of Onyx by JP Morgan, during a panel hosted on Tuesday (Aug 30) by the Monetary Authority of Singapore.

First, the regulatory infrastructure is not in place yet, and that is slowing down the financial industry, he said.

“If you think about deposits, tokenized deposits don’t exist in the world right now” as a result, Farooq added.

But for another, “there aren’t that many use cases” yet, Farooq said. “Yes, you can try to tokenize deposits to create crypto. But who cares? Most crypto is still junk, actually…except for, I’d say, a few dozen tokens.”

Everything else, he said, “is either noise, or frankly, it’s just going to go away. So, in my opinion, the use cases haven’t fully emerged.”

While there are things you can do right now, he added, “most of the money being spent in Web3 today in the current infrastructure is for speculative investments.”

See also: Web3: Is there anyone ‘there’ there? And if so, where is it?

Having learned their lessons in the 2008-2009 financial crisis, banks understand “if you go down that road, it’s probably going to end badly,” Farooq said.

New use cases

Farooq said he believes these use cases will emerge.

JP Morgan remains “very committed to the technology” and is investing heavily in it, he said. “When you look at Web3, and you look at what the framework and what the runway of this thing might be one day, it would be pretty short-sighted for financial institutions not to be very heavily involved in this technology.”

When you consider moving money or creating tokenized assets like stocks and bonds, or even tokenized real estate on blockchains, Farooq argued, you can see how dramatically different things can be with a reinvented infrastructure.

JP Morgan has been thinking very hard about “building the infrastructure that enables that technology to be applied to assets as they are understood and regulated today, but also enables us to be ready for the next cycle, which will be the asset cycle,” Farooq said.

At the same time, he said he believes big banks will win the race to create the blockchain-based, crypto-powered infrastructure.

“All the banks are looking at this as a way to really rethink the future of their business,” Farooq said.

Playing to win

Farooq said the company Chase transfers about $10 trillion every 24 hours, “right now our JPM Coin infrastructure is doing upwards of about $1 billion per day.”

That’s far more than any competitor, he added.

“When we do the $1 billion, we abide by all the rules that the $10 trillion abides by,” he said. “And so all our regulators around the world are happy with the approach.”

While that means FIs are slower, given the complex regulatory regime under which they operate, that is not a bad thing, given the implications for financial stability if things go wrong for big banks, Farooq added.

But potential customers “know that we tick all the boxes [for] everything from sanctions control to anti-money laundering (AML) and know your customer (KYC) checks.”

Everyone in the blockchain financial space, whether it’s a large traditional firm or FinTech startup, “is trying to build trust, and one of the institutions [customers] most trust, for better or for worse, is their bank.”

He added, “the big institutions that catch up to this are going to be absolute winners in the market.”

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