JPMorgan Adds Blue Chip Halo to Crypto

JPMorgan Chase’s forthcoming crypto exposure basket may not be the crypto trading product some hope to see out of a major financial institution or give investors direct exposure to digital assets, but it’s still a big deal.

The bank filed a number of documents Tuesday for a basket of stocks in 11 companies that hold digital assets or have a digital assets business. It will be available at the end of March with a minimum investment requirement of $1,000. 

“This sounds like a very small step toward making cryptocurrencies a more serious part of investment considerations without having to commit to anything,” said James Wester, research director for worldwide blockchain strategies at IDC. “If it outperforms, it might provide the basis for additional adventures in investing that are tied more directly to digital assets or crypto. And if nothing else, it provides a handy ticker to gauge how companies ‘related to cryptocurrencies’ are performing.”

JPMorgan CEO Jamie Dimon has a history of negative and even hostile comments about bitcoin that gets lots of media attention, though the organization has a comprehensive blockchain strategy that includes JPM Coin, an interbank settlement product.

“Anyone who pays attention to this already knows that JPMorgan has made big bets in this area and is really at the vanguard, whether the CEO is aware of it or not,” said David Yermack, professor of finance at the New York University Stern School of Business.

The blue chip halo

Whenever a blue chip financial manager enters the digital asset industry – whether through retail investing products, custody or anything else – it creates a halo effect that makes the curious but skeptical investors more comfortable investing in digital assets. 

JPMorgan’s product doesn’t give direct exposure to cryptocurrencies and the document filed by the bank warns that the basket’s performance may not be correlated with the price of a digital asset – though it’d be no accident if the stock of a company with a robust bitcoin business or with bitcoin on its balance sheet shot up on a day the price of bitcoin shot up. 

It’s not the first and won’t be the last bank seeking to meet client demand for digital assets by giving indirect exposure. Earlier this year BlackRock added bitcoin futures to the derivatives that can be traded in two of its funds. More recently, Goldman Sachs has said it’s relaunching its digital asset trading desk and will start dealing bitcoin futures later this month. 

JPMorgan’s new product is also similar to VanEck’s Digital Assets ETF. Like JPM’s basket, it would give investors exposure to bitcoin through traditional stocks. 

VanEck’s ETF will hold equity in companies that generate at least 50% of revenues from digital assets, and differ from existing ETFs “by offering more pure exposure to picks and shovels technology businesses,” said Gabor Gurbacs, VanEck’s director of digital assets.

Better off buying bitcoin?

Investors purely seeking profit from digital assets would be better off buying bitcoin, Yermack said.

“You could go out and buy these stocks yourself, you don’t need JPMorgan to do it for you,” Yermack said. “The value is they are taking the trouble to do the research and if you’re completely ignorant of which companies are well-known operators in this space, you can just outsource that to JPMorgan.”

Still, Yermack said, it has the effect of bringing digital assets more into the mainstream for the general public.

Leah Wald, CEO at asset manager Valkyrie Investments, said it would make sense if JPMorgan enabled customers to buy bitcoin and ether through individual investment accounts down the line, especially since the US Office of the Comptroller of the Currency gave the green light to nationally chartered banks like Anchorage to custody crypto assets. Plus, the on-ramps into digital assets for retail and institutional investors have become stronger over the last few years.

“The smart money has been heading into digital assets, and when competitors begin to increasingly offer these services to their clients, JPMorgan’s smart money is likely to also head in that direction,” she said.

Making room for legacy banks

There will soon be more room for legacy banks to enter the digital asset business as the regulatory environment continues to evolve, Yermack said. For example, the Eliminate Barriers to Innovation Act of 2021, introduced yesterday by Reps. Patrick McHenry (R-N.C.) and Stephen Lynch (D-Mass.), would create a task force to revisit many of the rules for how digital assets are regulated. The outcome of that process could take a year to arrive at but could ultimately “open up the gates to firms not having to worry about a lot of regulatory pushback,” he said.

Yermack added that blockchain technology will also eventually “move backwards and take over the old market” for bonds, commodities and other products.

“It will become almost a second thought to offer crypto coins as assets alongside all the other blockchain markets that are likely to be created over the next five to 10 years,” he said.

A spokesperson for JPMorgan Chase declined to comment for this story.