JPMorgan has outlined key changes it expects to see in the cryptocurrency industry and its regulation following the collapse of cryptocurrency FTX. The global investment bank is considering a number of new regulatory initiatives, including those focusing on custody, client asset protection and transparency.
JPMorgan, Crypto Industry Expects Big Changes Post FTX Meltdown
Global investment bank JPMorgan published a report on Thursday outlining the key changes it expects to see in the cryptocurrency industry following the collapse of cryptocurrency exchange FTX.
Global strategist Nikolaos Panigirtzoglou explained that the collapse of FTX and its sister company Alameda Research not only triggered a cascade of cryptocurrencies crashing and halting pullbacks, but “could lead to increased investor and regulatory pressure for cryptocurrencies to disclose.” more information on their balance sheets.
Panigirtzoglou went on to list the key changes JPMorgan expects after the FTX collapse. First he wrote:
Existing regulatory initiatives already in place are likely to be promoted.
The JPMorgan strategist expects the European Union’s Markets in Crypto Assets (MiCA) bill to receive final approval by the end of the year and the regulation to come into force at some point in 2024.
As for the United States, he explained that “regulatory initiatives have become more interesting since the collapse of Terra”:
Our guess is that it will be even more relevant after the collapse of FTX.
“The main debate among US regulators centers around the classification of cryptocurrencies as securities or commodities,” Panigirtzoglou said.
Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), said that bitcoin is a commodity, while other cryptotokens 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 also provides:
New regulatory initiatives are likely to emerge that focus on the custody and protection of customers’ digital assets, just as in the traditional financial system.
Noting that many retail crypto investors have already switched to holding their cryptocurrencies using hardware wallets, the strategist described: “The main beneficiaries after the FTX collapse are institutional cryptocurrencies… Over time, these trusted custodians will likely dominate relatively smaller cryptocurrencies. or cryptocurrency exchanges.”
Further, the JPMorgan report notes that “new regulatory initiatives aimed at separating brokerage, trading, lending, clearing and custody activities as in the traditional financial system may emerge”:
This separation will have the greatest impact on exchanges such as FTX that combine all these activities, raising issues of client asset protection, market manipulation and conflicts of interest.
In addition, the JPMorgan strategist said, “New regulatory initiatives focusing on transparency are likely to emerge, requiring regular reporting and auditing of reserves, assets and liabilities among major cryptocurrencies.”
Another big change identified by the investment bank is that “Crypto derivatives markets will see a shift to regulated venues with CME emerging as the winner.”
Panigirtzoglou also discussed decentralized exchanges (DEX), noting that they face a number of obstacles until decentralized finance (defi) becomes mainstream. “For larger institutions, DEXs will typically not be sufficient for larger orders due to slower transaction speeds or trading strategies and the order size that can be tracked on the blockchain,” the JPMorgan strategist said.
Do you agree with JPMorgan’s analysis? Let us know in the comment section below.
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