JP Morgan sees “regulatory convergence” between Bitcoin and traditional finance in 2023

U.S. investment bank JP Morgan predicts that by next year there will be more regulation of the bitcoin (BTC) and cryptocurrency market, given the failure of the FTX exchange.

According to the institute, there will be regulations “imported” from traditional finance, which will create a convergence between the emerging ecosystem and the trust-based financial system.

In its most recent report on global markets, JP Morgan notes that “new regulatory initiatives are also likely to emerge.” These would attention to transparency and periodic audits. Of the reserves held by companies related to the bitcoinas exchanges, brokers, lenders, and custodial services.

Along these lines, estimate the new regulations focused on the custody of digital assets.

Advertisement

However, as the regulations come into effect, the bank acknowledges that retail and institutional investors are already “taking steps” to protect themselves.

One of these measures is the use of COLD BAGSUsed as a mechanism to maintain (holdear) digital goods. JP Morgan itself claims that the providers of hard portfoliossuch as Ledger or Trezor, “have seen an exponential increase in sales in recent weeks,” again in the wake of FTX’s critical situation.

Pressure from investors and regulators on bitcoin companies to increase

In its report, JP Morgan also predicted that with the collapse of FTX, pressure from investors and regulators on bitcoin-related companies will increase significantly.

The pressure will be strong especially in terms of requests for information on companies’ financial statements. This, according to the bank, with the intent of “safeguarding customers’ assets.”

Advertisement

FTX, in particular, has been preferred over Binance by institutional clients (…) so the events of the last few weeks are likely to change the way institutional investors interact with exchanges to ensure their assets are protected.

JP Morgan.

The report notes that there will be initiatives for legislation to require the separation of activities financial activities related to cryptocurrenciessuch as lending, clearing, and custody. This separation “will have the greatest implications for exchanges that, like FTX, combined all of these activities.”

But they clarify that new regulatory pressures are unlikely to affect other bureaus of exchangesuch as Binance, which is the largest exchange by trading volume.

“Pressure to subject major cryptocurrency operators to regulatory oversight will pose a greater challenge for offshore exchanges like Binance, which are largely unregulated,” the bank adds.

Bill initiatives could be passed by the end of the year

JP Morgan also noted in its report that due to the collapse of FTX, it is likely that the draft Cryptoasset Markets Act (MiCA).With a focus on the European Union (EU), is approved “before the end of the year.”“.

“After that, there will be a transition period of up to 18 months before the regulation takes effect in 2024.” He adds that what happened with FTX “could create pressure to shorten this transition period.”

This is as far as Europe is concerned. Extrapolating the estimates for the United States, JP Morgan points out that. the FTX crisis has made the need for “greater oversight” even more urgent. and consumer protection” using cryptocurrencies.

In addition, the bank points out that. the existing diatribe in the United States between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over who has the authority to regulate the cryptocurrency market, could be resolved thanks to the pushback from the collapse of FTX.

“It is likely that these disagreements (between the SEC and the CFTC) will perhaps be resolved by the classification of bitcoin as a commodity (commodity) and most other cryptocurrencies classified as securities (securities). Regardless of the classification combination, the CFTC will play a leading role in the cryptocurrency space as the regulator of cryptocurrency derivatives markets.”

JP Morgan, Investment Bank.

Decentralized exchanges will be subjected to greater scrutiny.

The U.S. investment bank used its report to outline its skepticism about a “structural change” in centralized exchanges (CEX) and decentralized exchanges (DEX), although it did acknowledged the increased use of DEXs since the fall of the FTX.as the CryptoNews reported.

For JP Morgan, it is likely that decentralized companies. are likely to be subject to “increased scrutiny” by regulators.given the likely regulatory initiatives already submitted by the financial institution.

“And although there has been an increase in DEX participation in cryptocurrency trading activity in recent weeks, this is more likely to reflect the collapse in cryptocurrency prices and automatic regulations that followed the FTX collapse,” JP Morgan notes.

As reported by this media outlet, FTX, once ranked as one of the largest bitcoin and cryptocurrency exchanges in the world, collapsed due to insolvency. And filed for bankruptcy last Friday, November 11.

The situation generated a real earthquake in market fundamentals. The first reaction was a sharp drop in the prices of major cryptocurrencies, such as bitcoin and ether, which are trading above $16,500 and $1,200.respectively, at the close of this article and according to the Price calculator by CryptoNews.

Due to this fact, the losses suffered by investors and users who had funds in the exchange collapsed.

The collapse of FTX is already being investigated by U.S. federal agenciesas well as financial crime units in the Bahamas and Turkey. The intent is to determine whether there have been indications of crime. for which to indict, prosecute and convict those who were responsible of the bitcoin-related society.