JPMorgan Expects Major Changes in Crypto Industry and Regulation After FTX Collapse

JPMorgan outlined the major changes it expects in the crypto industry and its regulation following the collapse of crypto exchange FTX. The global investment bank is considering several new regulatory initiatives, including those focused on custody, protection of client assets and transparency.

JPMorgan expects major changes in the crypto industry after the collapse of FTX

Global investment bank JPMorgan released a report on Thursday outlining major changes it expects to see 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 collapse of crypto entities and suspension of 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 then listed the major changes expected by JPMorgan after the collapse of FTX. First, he wrote:

Existing regulatory initiatives already underway are likely to be advanced.

JPMorgan strategist expects European Union Crypto Asset Markets (MiCA) bill will receive final approval before the end of the year and the regulations will come into effect sometime in 2024.

As for the United States, he explained that “regulatory initiatives have generated more interest after The Collapse of Terra,” to add:

Our hypothesis is that there would be even more urgency after the collapse of FTX.

“A key debate among US regulators revolves around the classification of cryptocurrencies as securities or commodities,” Panigirtzoglou continued.

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said that bitcoin is a commodity while most other crypto tokens are securities. However, several invoices were 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 shifted to self-custody of their cryptocurrencies using hardware wallets, the strategist described, “The main beneficiaries after the FTX collapse are institutional crypto custodians. …Over time, these trusted custodians will likely dominate the relatively smaller crypto-native custodians. or crypto exchanges.

Next, “new regulatory initiatives are likely to emerge focusing on the unbundling of brokerage, trading, lending, clearing and custodial activities as in the traditional financial system,” the JPMorgan report adds, noting:

This unbundling will especially have implications for exchanges which, like FTX, combine all these activities, raising issues of protection of client assets, market manipulation and conflicts of interest.

Additionally, “new regulatory initiatives are likely to emerge focusing on transparency requiring regular reporting and audits of reserves, assets and liabilities at major crypto entities,” the JPMorgan strategist detailed.

Another major change identified by the investment bank is that “crypto derivatives markets will likely see a shift to regulated venues, with the CME emerging as a winner.”

Panigirtzoglou also discussed decentralized exchanges (DEXs), noting that they face several hurdles until decentralized finance (defi) becomes mainstream. “For larger institutions, DEXs would generally not suffice for their larger orders due to slower transaction speed or their trading strategies and order sizes to be traceable on the blockchain,” the strategist said. from JPMorgan.

Do you agree with JPMorgan’s analysis? Let us know in the comments section below.

Kevin Helms

An economics student from Austria, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests include Bitcoin security, open source systems, network effects, and the intersection between economics and cryptography.