SEC and JPMorgan Get Serious About Crypto

SEC and JPMorgan Get Serious About Crypto

Bitcoin, the pioneer of digital currencies, celebrated its 10th anniversary in January. It would be fair to say, in the last decade, the cryptocurrency hasn’t revolutionized commerce in the fashion touted by early adopters. Of course, like Rome, a non-state-sponsored currency doesn’t get built in a day. The mere fact crypto businesses are still hanging on 10 years later is a win in and of itself. Moreover, the SEC and financial industry have recently signaled a renewed commitment to all things crypto.

Commissioner Hester Pierce and SEC Senior Advisor for Digital Assets and Innovation Valerie Szczepanik will participate in the DC Blockchain Summit 2019 on March 6, 2019, and their much-anticipated appearance comes on the heels of several recent agency actions.

The Commission in February announced a settlement with Gladius Network LLC over charges of conducting an unregistered initial coin offering (ICO). Gladius self-reported the ICO to the SEC, which played a part in the decision not to impose penalties. While the SEC did not impose a harsh penalty on Gladius, the remedy that it agreed to did make investors whole – and could be quite costly when applied to other ICO sponsors. The value of many coins has dropped precipitously after their ICOs, and if crypto firms have to refund their purchase price, they will suffer considerable losses.

In a further signal that the Commission views ICOs as securities, the SEC successfully convinced Judge Curiel to reconsider an earlier refusal to enter a preliminary injunction against Blockvest. Doubling down on attempts to remove perceived crypto bad-actors, the agency eventually persuaded the court on February 14, 2019 that false and misleading website postings cannot stand.

The news isn’t all bleak, however. CQ Roll Call interviewed a hopeful Commissioner Robert J Jackson Jr. on crypto-based funds: “Eventually, do I think someone will satisfy the standards that we’ve laid out there? I hope so, yes, and I think so,” Jackson said.

In another surprising about-face, cryptocurrencies have also received an affirmation from the most unlikely patrician. JPMorgan Chase announced last month that it would begin piloting JPM Coin, the first digital token backed by a U.S. megabank. JPMorgan bills it as being “based on blockchain-based technology enabling the instantaneous transfer of payments between institutional accounts.”

That would be the same New York-based JPMorgan helmed by CEO Jamie Dimon, who previously dismissed Bitcoin as a “fraud.” What gives?

“We have always believed in the potential of blockchain technology and we are supportive of cryptocurrencies as long as they are properly controlled and regulated,” said Umar Farooq, who heads JPMorgan’s digital currency arm. “As a globally regulated bank, we believe we have a unique opportunity to develop the capability in a responsible way with the oversight of our regulators. Ultimately, we believe that JPM Coin can yield significant benefits for blockchain applications by reducing clients’ counterparty and settlement risk, decreasing capital requirements and enabling instant value transfer.”

In English, that translates roughly to “we’re going slowly.” For now, JPM Coin can only be used by some of JPMorgan’s customers to send payments instantly between institutional accounts. With JPM Coin currently in the prototype phase, JPMorgan has yet to get the necessary approvals from regulatory authorities, according to Farooq.

Slowly but surely, it seems that both banks and the SEC are getting ever more serious about cryptocurrencies.

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