JPMorgan has outlined the major changes it expects to see in the crypto industry and its regulation following the collapse of crypto currency exchange FTX. The global investment bank is considering several new regulatory initiatives, including those focused on custody, client asset protection and transparency.
JPMorgan expects major changes in the crypto-currency industry after the FTX collapse.
Global investment bank JPMorgan released a report Thursday outlining the major changes it expects to see in the crypto-currency industry after the collapse of crypto-currency exchange FTX.
Nikolaos Panigirtzoglou, global strategist, explained that “Not only did the collapse of FTX and its sister company Alameda Research create a cascade of crypto entity collapses and suspended withdrawals“, but it is also “likely to increase pressure from investors and regulators on crypto entities to disclose more information about their balance sheets.“
Panigirtzoglou went on to list the major changes JPMorgan expects after the collapse of FTX. First, he wrote:
Existing regulatory initiatives already underway are likely to be advanced.
The JPMorgan strategist expects the European Union’s crypto asset markets (MiCA) bill to receive final approval before the end of the year and for the regulation to take effect sometime in 2024.
As for the United States, it explains that ” there was more interest in regulatory initiatives after the collapse of Terra “, adding:
We think there would be even more urgency after the FTX collapse.
“A key debate among U.S. regulators centers on the classification of crypto-currencies as securities or commodities“, Panigirtzoglou continued.
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has stated that bitcoin is a commodity while most other crypto-currencies are securities. However, several bills have been introduced in Congress to make the Commodity Futures Trading Commission (CFTC) the primary regulator of crypto-assets.
JPMorgan is also considering:
New regulatory initiatives are likely to emerge focusing on the custody and protection of customers’ digital assets as in the traditional financial system.
Noting that many retail crypto investors have already opted to self-custody their crypto-currencies using hardware wallets, the strategist described, “The main beneficiaries after the FTX collapse are institutional crypto-currency custodians … Over time, these trusted custodians will likely dominate over the relatively smaller crypto-native custodians or crypto exchanges.“
Then, “New regulatory initiatives are likely to emerge focusing on unbundling brokerage, trading, lending, clearing, and custody activities, as in the traditional financial system“, adds the JPMorgan report, which notes:
This decoupling will have the most implications for exchanges that, like FTX, combine all of these activities, raising questions about customer asset protection, market manipulation and conflicts of interest.
In addition, “new regulatory initiatives are likely to emerge focusing on transparency, mandating regular reporting and auditing of reserves, assets and liabilities across major crypto entities“, detailed the JPMorgan strategist.
Another major change identified by the investment bank is that “crypto derivatives markets are likely to move to regulated venues with the CME emerging as a winner.“
Panigirtzoglou also discussed decentralized exchanges (DEX), noting that they face several obstacles until decentralized finance (defi) becomes mainstream. “For large institutions, DEX would generally not suffice for their larger orders due to slower transaction speeds or their trading strategies and the size of orders to be traced on the blockchain“, opined the JPMorgan strategist.