JP Morgan & Bitcoin: Investment Note Elevates Crypto

jp morgan and bitcoin

A recent investment note from JP Morgan Chase elevated bitcoin as “an alternative asset of choice,” sending the cryptocurrency soaring over real estate and an array of traditional assets. Released on May 25, the investor note argued a 27% undervaluation of bitcoin with a targeted upside price of about $38,000 per coin. Effectively, this makes an argument for an over-exaggeration of pricing weakness for the coin relative to private equity, debt, and real estate. 

On the surface, this note is a major change in position from the bank whose CEO refuses to jump on the bandwagon when it comes to cryptocurrency. Last year, CEO Jamie Dimon stated, “It’s got no intrinsic value. And regulators are going to regulate the hell out of it.”

This antipathy towards bitcoin seems to be an outlier’s perspective in the United States, rivaling that of Christine Lagarde, President of the European Central Bank. Lagarde continues to spread the idea that cryptocurrency has no value due to the lack of backing from a government or centralized bank. 

This is the same belief Dimon espouses publicly, stating that bitcoin doesn’t matter without any official backing or support. 

The Investor’s Note

So, with these publicly shared beliefs, why does the investor’s note show a new potential relationship between JP Morgan and Bitcoin? To learn more, it’s important to examine the details of the note. 

First, the investor’s note is what may be referred to as a “sell-side” note from analysts within JP Morgan. This means that the analysts share their opinions on where investors might put their money under the current market conditions. Simply put, it has little to do with the opinion of the company’s CEO. 

Moreover, it’s important to remember how unlikely it is that Dimon, a CEO, would take the time to force his personal beliefs on cryptocurrency upon analysts in the company’s sell-side investment banking division. Anyone who thinks otherwise might not realize how complex the structure of a company such as JP Morgan Chase can be. 

Need proof? No problem. Dimon said as much himself in a 2021 interview with CNBC.

Even Dimon himself has said as much. In an interview in May 2021, he said the following:

“I’m not a bitcoin supporter,” Dimon said during The Wall Street Journal CEO Council summit on Tuesday. “I don’t care about bitcoin. I have no interest in it.”

“On the other hand, clients are interested, and I don’t tell clients what to do,” he said.

“Blockchain is real. We use it,” according to Dimon. “But people have to remember that a currency is supported by the taxing authority of a country, the rule of law, a central bank.”

Degrees of Separation: Personal Business and Business

In the above quotes from Dimon, there are plenty of ideas to explore. Dimon is the CEO of a large, powerful bank that wields global influence. Any individual in that position is there because they are smart enough to serve their customers. While he himself has no interest in JP Morgan and bitcoin having a relationship, he understands the interests of his audience. 

With Dimon’s expressed disinterest in cryptocurrency, he knows not to let that drive the views of the bank. 

Furthermore, the sell-side analysts at JP Morgan Chase are not his paid mouthpieces. It’s their duty to analyze current market conditions and provide an investment thesis to their clients. Additionally, they want to have clients sign over funds to earn a broker’s fee for the bank.

When it comes to Dimon, JP Morgan, and bitcoin, it’s not all that complicated. 

However, there’s always a little more to the story. 

Along with the rest of Wall Street, JP Morgan is in a difficult position. For roughly 14 years, the Federal Reserve has kept interest rates close to zero-bound. At this position, traditional bank revenue tends to fall down to zero as well. 

Unfortunately, the net interest margin (NIM) tends to be the core business of a traditional bank. 

NIM Broken Down and The Influence of Digital Assets

The NIM is the difference between what they pay you for a deposit to loan them out to investors at a higher rate. 

The bank charges X, and you receive 30-50% of X while the bank holds onto the rest. In this case, the rest of X is NIM. NIM is a dead letter office on a quarterly earnings report for the majority of major banks. 

Instead, banks continue to engage in more esoteric investing and trading schemes as they attempt to make money. Moreover, the traditional depositing customers are simply an albatross they allow in to keep regulators away. 

So, bitcoin, cryptocurrency, and digital assets, in general, are now another source of income for banks to tap. As they do, they sell another product to their high-valued investors. That’s where the bulk of their funds come into play. 

In turn, this new JP Morgan and bitcoin relationship we see comes at a crucial moment in the market. As bitcoin clung desperately to technical support at about $29,000 per coin, the investor’s note comes out. 

For some, this is a sign that the bank now has enough bitcoin to fill a line item on a balance sheet. Today, Bitcoin and crypto are part of big business. 

With the shift away from China over the past couple of years, there is now more interest in new ways to sell crypto-adjacent products to investors. In the meantime, Wall Street accumulates during pullbacks as they amp up the FUD when the price begins to rally. 

Dimon, JP Morgan, and Bitcoin

So, why does Dimon hate cryptocurrency so much? Crypto is by no means a challenge to JP Morgan’s business. Instead, it’s for a similar reason as to why certain officials hate gold. 

For example, Charles Munger once said, “Civilized people don’t buy gold.”

However, this is likely due to the fact that they cannot lobby officials to craft one-way streets that allow a business to invest in gold without public competition. Similarly, it’s not possible for Dimon to structure a product around bitcoin and develop a consistent revenue stream.

Simply put, it’s a matter of business, or a lack thereof. There’s no profit-selling for them to fund once or twice that keeps crypto in a cold wallet.  

When it comes to investment banking, banks operate on a “Two and Twenty” model. The 2% comes into play as an annual fee while the 20% brings in more revenue at a certain benchmark. Unfortunately for them, that model doesn’t work on something people buy and hold. 

So, Dimon, Munger, and others in such positions do not see bitcoin as an opportunity for the business. However, other investors see it in a different light. 

As with any asset that exists outside the financial system, Bitcoin has the potential to re-establish financial discipline across the globe. However, this idea puts the traditional banking system at risk. 

Independence, Digital Assets, and Outside Money

When it comes to the relationship between JP Morgan and bitcoin, there are many layers to examine. Generally, cryptocurrencies are an attempt to reverse the wealth extraction dynamic that the current system upholds. 

Consider this: Dimon and other bank CEOs make their trillions from unearned wealth, a rent they charge on their investors’ finances. This places them close to the source of new money. 

Why would Dimon want to give up any of this space to something that threatens those profits? 

However, when it comes to JP Morgan and bitcoin, the company finds itself in a trap. The system they exist in has less real capital when major players move to cryptocurrency investments. As major players, they have to try to stay afloat in this system. This produces the mixed signals we see about JP Morgan and bitcoin. 

As the market slowly trends towards outside money to preserve wealth, companies like JP Morgan still want to manipulate the cost of inside assets. This keeps their returns high enough to slow the outflow. 

This leaves everyone in a race toward a future that no one can predict. As major forces fight for a share of the market during the fall of an old system, they have to find their place in the new system, or systems. 

Moving forward, we can expect to see people like Dimon fight with everything they have to maintain relevance. This leaves the relationship between JP Morgan and bitcoin in a strange, precarious position. 

On one hand, the analysts are likely to continue recommending bitcoin as an investment to clients. However, the other hand continues to spend money developing a new payment layer. 

JP Morgan and Bitcoin: What to Expect

From one perspective, the promise we see in this announcement on JP Morgan and bitcoin is that there’s a fear of where the system is headed. So, as we wonder about this relationship, it’s important to understand this: JP Morgan is not a friend of cryptocurrency. 

However, Dimon understands the threat to the current system because he is a central figure. Moreover, he knows that there is an escape route for some of his best customers who no longer wish to pay rent to a bank.

While Dimon may allow bitcoin to develop as a means of undermining other banks, it’s likely that he also wishes to undermine crypto in the long term. Clearly, he still favors traditional solutions tied to the system. Still, we may see some short-term victories for the banks, which is sure to frustrate crypto enthusiasts. 

However, it seems that these CEOs are fighting against the tide. 

Whether JP Morgan and bitcoin have a relationship does not matter for bitcoin. Instead, it continues to develop a network that allows investors to ignore the traditional system as it vies for global power. 

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