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JPMorgan Sees a Silver Lining in FTX Collapse

2 mins
22 November 2022, 12:30 GMT+0000
Updated by Geraint Price
22 November 2022, 12:30 GMT+0000
In Brief
  • JPMorgan said the FTX collapse could speed up cryptocurrency regulations, resulting in the broader use of blockchain technology.
  • In a report, the investment bank said that auditing and transparency needed to be addressed specifically.
  • Meanwhile, the Bank of England and MicroStrategy founder Michael Saylor also believe the incident will fast-track regulations.
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JPMorgan said the FTX collapse could serve to dramatically accelerate cryptocurrency regulation, a belief echoed by other market players.

The investment bank detailed the events leading up to the liquidity crisis and bankruptcy of FTX in a recent report. Although characterized as a “major short-term setback,” JPMorgan emphasized a “silver lining to the sudden and unexpected collapse at FTX.”

Given the publicity surrounding the collapse, and subsequent revelations of unprecedented impropriety, JPMorgan believes authorities will expedite sweeping regulations. It highlighted similar banking regulations that followed soon after the global financial crisis of 2008.

JPMorgan added that this comprehensive reform would then facilitate the adoption of blockchain technology by financial institutions and the mainstream.

JPMorgan Emphasizes Transparency

The investment bank also singled out points of concern that require particular attention. JPMorgan said that more auditing and transparency should be required at the exchange level, as well as the stablecoin level. One reason the FTX collapse has been so shocking is the extent to which its questionable methods had been obscured, especially in its handling of customer assets.

Consequently, major exchanges, such as Binance, earnestly brought forth evidence that they still retained their customers’ assets. Several provided their cold wallet balances, while seeking to produce more thorough proof of reserves through a Merkle tree algorithm.

JPMorgan acknowledged these efforts in its report. Regarding regulations, it also suggested creating a framework that enables companies to readily provide this type of transparency.

While the collapse has galvanized crypto skeptics, JPMorgan remains optimistic about the prospects of the technology. Earlier this week, it registered a trademark for a digital wallet. In its report it also pointed out that centralized entities were responsible for recent collapses rather than decentralized protocols.

FTX Collapse Fast-Tracking Reform

Many other participants, both within the traditional financial and cryptocurrency markets, share the belief that this incident will fast-track reform. Earlier this week, the Bank of England urged greater cooperation in establishing a comprehensive cryptocurrency framework following the FTX collapse.

Deputy Governor Jon Cunliffe also said that doing so would enable institutions to offer consumers the benefits of blockchain technology.

Recently, MicroStrategy founder and Bitcoin advocate Michael Saylor also expressed a similar sentiment. Saylor told CNBC that recent events would “strengthen the hand of regulators,” and “accelerate intervention.”

He hoped this would take the form of regulators providing a pathway for consumers to register digital securities. Saylor said the market would then consolidate around fewer “registered tokens,” enabling the industry “to grow much more rapidly.” 


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