Blockchain technology has proven to be one of the most innovative technology concepts globally over the past decade. While its adoption began slowly and it suffered a bit of setback due to its association with cryptocurrencies and their criminal applications, blockchain has started to see suitors pretty much everywhere.
Today, the blockchain industry is seeing a significant level of attention from the banking sector. Several banking institutions have realized that blockchain can help them optimize their performances, especially with processing payments and remittances. By capitalizing on blockchain’s greater speed and decentralization, banks understand that they can enter into an era of faster and more secure transactions.
JPMorgan’s Tech-First Approach Extends to Blockchain
Foremost among the banks adopting blockchain is JPMorgan. This isn’t much of a surprise, considering that the company has always seemed to be a trendsetter among top American banks when it comes to technology adoption. The firm has been making significant plays in the blockchain space for a while, focusing primarily on optimizing payments and providing a safe landing spot for its customers to access easier remittances.
The most recent among JPMorgan’s blockchain efforts is one that is quite literally out of this world. According to reports, the investment banking giant partnered with GomSpace - a Danish space firm - to use the latter’s satellites for a blockchain-based transaction in space. The transaction was reportedly executed between two GOMX-4 satellites in the lower part of the Earth’s orbit. It formed the first bank-based tokenized transaction in space, marking the entry of an era where decentralized communication can occur even out of the Earth.
Omar Farooq, the head of Onyx - JPMorgan’s blockchain arm - explained that their mission was to see possible integrations between blockchain and the Internet of Things (IoT). With products like the Google Home assistant and Amazon Echo running on IoT technology, JPMorgan is hoping to get an application base for payments effectively. The company is looking towards a future where smart devices can make autonomous and accurate transactions, and they decided to try out this breakthrough in space first.
Speaking to Reuters, Farooq said, “The idea was to explore IoT payments in a fully decentralised way. Nowhere is more decentralised and detached from Earth than space. Secondly, we are nerdy and it was a much more fun way to test IoT.”
Payments Are the Focus
The space transactions marked yet another milestone for JPMorgan, which has been focused on blockchain-based payment developments for the past few years. In 2017, the company piloted Liink, a peer-to-peer payment network and ecosystem. Originally dubbed the Interbank Information Network, JPMorgan rebranded the product to Liink in October 2020.
Thanks to Liink, banks can enjoy easy access to each other for seamless transactions and data transfers. It currently has over 400 financial corporations and institutions across the world, covering over 75 countries. These include over half of the top 50 banks in the world.
Just last month, The Economic Times reported that the State Bank of India (SBI) - a top government-owned bank in the country - had joined Liink with a view of bolstering its cross-border payments via a blockchain solution. Per the report, the SBI was hoping to reduce transaction costs and optimize payment efficiency for customers. It believed that Liink would be the ideal way to go.
SBI deputy managing director Venkat Nageswar confirmed that the bank had already taken its system on Liink and was live.
“We are excited to be the first bank in India to go live on the network and look forward to closer partnership with JPMorgan on implementation and exploring applications as part of the network to better serve our clients,” the bank executive told the news source.
The development is especially stunning because the Indian government is looking to ban cryptocurrencies in the country. Even at that, it recognizes that blockchain technology is still an invaluable tool for financial development.
JPMorgan Looks to Crypto
Beyond its focus on blockchain development, JPMorgan has now been doing some significant work with cryptocurrencies. Since last year, the company has been covering cryptocurrencies extensively, thanks in no small part to the market’s performance and the increased focus from institutional investors.
Last month, Bloomberg reported that strategists at the company had recommended firms to convert a portion of their asset base to Bitcoin. The strategists - named Amy Ho and Joyce Chang - explained that Bitcoin has proven to be a reliable hedge against inflation. To mitigate the risks of significant market downturns, allocating one percent of revenues might be a good move from companies.
The analysts also recommended just one percent, explaining that small allocations would be ideal for protecting companies’ bottom lines against significant downturns in the crypto market. It made sense, considering that Bitcoin fell over 20 percent in the days after hitting its all-time high of around $58,000, per data from CoinMarketCap.
“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio,” Chang and Ho explained.
Tracking Crypto Companies’ Performances
Along with the allocation advice, the investment bank has now filed to launch a debt instrument for crypto-facing companies. In a filing with the Securities and Exchange Commission (SEC), the bank pointed out its desire to launch the Cryptocurrency Exposure Basked - an unequally weighted basket filled with 11 Reference Stocks of American companies with business operations related to cryptocurrencies.
The filing states: “The weights of the Reference Stocks were determined based in part on exposure to Bitcoin, correlation to Bitcoin and liquidity.”
As the filing showed, 20 percent of the basket’s weight has been allocated to MicroStrategy - the business intelligence firm with over 90,000 BTC in asset reserves 18 percent has been allocated to payment processor Square, which provides crypto payment services to customers. Riot Blockchain, a Bitcoin mining firm, will get 15 percent of the basket’s weight, while PayPal and Nvidia will also get 15 percent each.
Other companies included in the basket include Overstock, the Intercontinental Exchange, the Taiwan Semiconductor Company, Advanced Micro Devices (AMD), and Silvergate Capital. Payouts will depend on how basket companies perform, with the minimum investment being $1,000
Clearly, JPMorgan is looking to go all in for blockchain and crypto.