JPMorgan Expects Urgent Crypto Industry Regulation Post-FTX Collapse

JPMorgan Expects Urgent Crypto Industry Regulation Post-FTX Collapse

JPMorgan expects urgent crypto industry regulation following the collapse of the crypto exchange FTX. The global investment bank envisages several new regulatory initiatives focusing on custody, customer asset protection, and transparency.

JPMorgan Outlines Major Changes in the Crypto Industry

Global investment bank JPMorgan published a report on Thursday outlining major changes in the crypto industry following the collapse of cryptocurrency exchange FTX.

Global strategist Nikolaos Panigirtzoglou explained that "not only has the collapse of FTX and its sister company Alameda Research created a cascade of crypto entity collapses and suspensions of withdrawals," but it is also "likely to increase investor and regulatory pressure on crypto entities to disclose more information about their balance sheets."

Panigirtzoglou has listed the main changes that JPMorgan expects after the FTX meltdown. Firstly, he wrote:

"Existing regulatory initiatives already underway are likely to be brought forward."

The JPMorgan strategist expects the European Union’s Markets in Crypto Assets (MiCA) bill to be approved before the end of the year and the regulation to be effective in 2024.

He explained that "regulatory initiatives attracted more interest following Terra’s collapse," adding, we guess that there would be even more urgency following the FTX collapse."

"A key debate among US regulators centers around the classification of cryptocurrencies as either securities or commodities," Panigirtzoglou continued.

The chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, has said that bitcoin is a commodity, whereas most other crypto tokens are securities. However, several bills have been introduced in Congress to make the Commodity Futures Trading Commission (CFTC) the primary regulator of crypto assets.

Protection of Customers' Digital Assets

JPMorgan also envisages:

"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 moved to self-custody of their cryptocurrencies using hardware wallets, the strategist has described, "the main beneficiaries post-FTX collapse are institutional crypto custodians... Over time, these trusted custodians will likely dominate over relatively smaller crypto-native custodians or crypto exchanges."

"New regulatory initiatives are likely to emerge focusing on the unbundling of broker, trading, lending, clearing, and custody activities as in the traditional financial system," the JPMorgan report adds, noting:

"This unbundling will have greater implications on exchanges like FTX with combined activities raising issues about customers’ asset protection, market manipulation, and conflicts of interest."

"New regulatory initiatives are likely to emerge focusing on transparency, mandating regular reporting and auditing of reserves, assets, and liabilities across major crypto entities," the JPMorgan strategist has detailed.

Another major change identified by the investment bank is that "crypto-derivative markets will likely see a shift into regulated venues, with CME emerging as a winner."

Panigirtzoglou also discussed decentralized exchanges (DEX), noting that they face several hurdles until decentralized finance (Defi) becomes mainstream. "For larger institutions, DEXs typically would not suffice for their larger orders due to slower transaction speeds or their trading strategies and order sizes being traceable on the blockchain," the JPMorgan strategist opined.

Do you agree with JPMorgan’s analysis? Please post your comments.