Much like stock and bond prices, Goldman recently began publishing digital asset prices on its Marquee platform for large clients like hedge funds, preparing for a time when the bank might be able to support cryptocurrency trading.
In 2019, a unit of JPMorgan called Onyx introduced JPM Coin, a dollar-backed digital currency that ran on Quorum, an in-house technology that mimicked the blockchain structure. But the bank controlled Quorum, unlike Bitcoin’s blockchain, which is decentralized. He recently sold Quorum to a software start-up.
JPMorgan has also launched an all-digital system that mimics the traditional “overnight repo” market, where banks trade short-term US government debt securities for cash. Previously, these trades took longer than a day – hence the “overnight” label – but JPMorgan’s platform completes them in just 15 minutes, reducing risk. It only has three users so far, and two are JPMorgan’s own companies. Goldman became its first outside participant this year. If more banks join in, JPMorgan could end up controlling one of the world’s most crucial short-term funding markets.
Igor Pejic, a cryptocurrency expert, said JPMorgan is one of the few big banks whose experimentation with blockchain – the technology underlying digital currency transactions – has made them digital pioneers ready to benefit in the future from the systems they are currently testing because, he says, “they are putting in place an infrastructure that they ultimately control.”
But soon after JPM Coin went live, regulators started calling, said a person familiar with the matter who was not authorized to speak publicly. They feared that the movement of coins through the financial system would cause an accumulation of risk as they were tied to the dollar, causing panic and leading to the 21st century version of a bank run. The bank had to reduce the scope of use of JPM Coin.
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Now, JPM Coin cannot be used to transfer value outside of JPMorgan’s internal systems. Bank customers can use it to move dollars and other assets around the bank almost instantly, but it makes no sense in the rest of the world.
Regulators have also drawn attention to smaller banks trying to set up cryptocurrency businesses. In 2018, New York-based Quontic Bank, with just $1 billion in assets, asked the main US banking regulator, the Office of the Comptroller of the Currency, for comment on its plans to launch a program. debit cards offering customers rewards denominated in Bitcoin.