Investment bank JPMorgan sees a silver lining for crypto in the recent FTX collapse, as it could bring needed regulatory change. Moreover, the firm points out that the collapse came from centralized entities, not decentralized applications.
The world’s largest bank by market cap issued a report tackling the recent collapse of FTX, highlighting the causes and the potential effects from it. According to the report, JPMorgan sees FTX’s crash as a “major short-term setback,” but one that could help bring change to the industry.
"We see the widely publicized collapse of FTX as potentially dramatically accelerating the timeline to which crypto-related regulation will be ushered in," analysts at JPMorgan wrote.
Regulation “Necessary” to Bring Crypto to the Masses
FTX is just one of the recent high-profile collapses in the crypto space. The other two are Singapore-based crypto hedge fund Three Arrows Capital and stablecoin issuer Terra-Luna.
The collapse of these players highlights the risks that unregulated centralized entities pose to the crypto industry. That’s why regulation is critical for crypto to go mainstream, analysts at JPMorgan said.
The bank says that “regulators and politicians agree” that there needs to be a regulatory framework for crypto. However, the FTX collapse will likely make them act much faster than they otherwise would have.
They argue that regulation will help the crypto industry for two reasons. For one, regulation will help onboard institutional investors to crypto. Regulation is a “key catalyst” to “drive a massive ramp in institutional adoption,” the analysts wrote.
Moreover, they believe regulation is key to “further unlocking the utility value” of blockchain. Regulations are the “necessary catalyst” that would help “bring the power of blockchain technology to the masses.”
Failure Came From Centralized Entities
JPMorgan also highlighted the fact that the issues in the crypto space came from centralized entities.
The bank seemed to echo the belief that the FTX is not a failure of crypto or blockchain tech. Instead, it is a failure of unregulated centralized financial institutions.
"While the news of the collapse of FTX is empowering crypto skeptics, we would point out that all of the recent collapses in the crypto ecosystem have been from centralized players and not from decentralized protocols," JPMorgan analysts said. Terra-Luna, Three Arrows Capital and FTX are all centralized entities.
In placing the blame on centralized exchanges, JPMorgan echoes the recent statements made by both crypto insiders and financial experts.
Ethereum founder Vitalik Buterin stated that the FTX collapse shows that “centralized anything is by default suspect.” He also said that the collapse shows the value of trusting “open and transparent code above individual humans.”
Jenny Johnson, CEO of the global investment firm Franklin Templeton, said that the FTX collapse would spur investors to move to decentralized exchanges. Exchanges built on the Uniswap Protocol could see a boost, she believed.
On the Flipside
- Institutions are still dumping crypto following the FTX collapse. It is unclear when attitudes will shift again.
Why You Should Care
JPMorgan is the largest bank in the US and the world’s largest bank by market cap. They have a huge influence on the market, both directly and through their influence on other institutional players.
Read about the effect of the FTX collapse on institutional confidence:
Institutional Investors Forgo Digital Assets Following FTX Crash
Read about JPMorgan’s crypto initiatives:
JPMorgan to Launch Crypto Wallet Under New Trademark