Two major U.S. cryptocurrency exchanges known for aggressively seeking regulatory approval, Coinbase and Gemini, have been accepted as JPMorgan Chase customers, breaking through an important glass ceiling in the financial industry.
The news, reported in the Wall Street Journal on May 12, is not only the first time the sixth-largest bank in the world has accepted cryptocurrency exchanges as clients. It is also the first time any major U.S. bank has accepted clients from the crypto world since they began shunning the Bitcoin business several years ago.
Calling the news a “[g]reat development,” Gabor Gurbacs, director of digital asset strategy for VanEck/MVIS, tweeted that it is a sign [b]anks are warming up to serving Bitcoin.”
Cryptocurrency exchanges have had a great deal of trouble finding payment processors willing to allow their customers to transfer dollars in and out of their accounts. This difficulty was ultimately behind Bitfinex’s loss of $850 million to a scammer helping them get around banks’ policy of closing accounts associated with cryptocurrencies in any way.
JPMorgan Chase will be “primarily providing cash-management services to the firms and handling dollar-based transactions for the exchanges’ U.S.-based customers,” the WSJ said, citing anonymous sources. “It will process wire transfers, and deposits and withdrawals.”
The bank will not handle and bitcoin or other cryptocurrency transactions, the report added.
Coinbase and Gemini both declined to comment on the story.
A key to winning JPMorgan’s seal of approval, for both San Francisco-based Coinbase and New York-headquartered Gemini, was their focus on marketing themselves as law-abiding and regulatory-friendly businesses.
Both have earned hard-to-get credentials from the U.S. Treasury’s Financial Crimes Enforcement Network, also known as FinCEN. In addition, Gemini has a Trust License from the New York State Department of Financial Services and Coinbase has a BitLicense—far and away the toughest state credential to obtain. New York’s tough licensing regime has driven a number of legitimate exchanges—including Kraken—to stop doing business in the state.
Coinbase and Gemini were also among the 10 “authentic” exchanges noted by Bitwise Asset Management in it landmark March 2019 report claiming that 95% of all BTC trades are faked.
JPMorgan Chase CEO Jamie Dimon may have made himself the poster child for Bitcoin bashing, calling it a “fraud” and a “terrible store of value.” Nonetheless, his bank has been an aggressive cryptocurrency innovator.
Bitcoin maximalist and Satoshi Nakamoto Institute co-founder Pierre Rochard tweeted that he was “[n]ot surprised to see JPM banking Bitcoin exchanges, they are constructive on the topic even if their CEO’s remarks have been perceived as negative in the past.”
In February, JPMorgan launched the JPM Coin, an Ethereum-based stablecoin pegged to the U.S. dollar. It is intended to be used by private enterprise blockchains.
On the other hand, Dimon also advised investors to steer clear of Bitcoin for anything other than an economic collapse on a “dystopian” scale. So with the COVID-19 lockdown pushing 33 million Americans out of work and hospitals beyond their limit, maybe JPMorgan Chase’s head honcho has just come around to bitcoin becoming a worthwhile investment.
Banking on reputation
Coinbase CEO Brian Armstrong runs the largest cryptocurrency exchange in the U.S., as well as one of the oldest, founded in 2012.
Just this year, its Coinbase Custody arm got a formal seal of approval from accounting giant Grant Thornton for completing a pair of very strict audits established by the American Association of Certified Public Accountants: SOC1 and SOC2, types 1 and 2.
Beyond that, it won two other big but informal seals of approval, one from the U.S. government and another from Visa.
The company’s reputation is solid enough that the U.S. Treasury Department in March poached its chief legal officer, Brian Brooks. He was appointed chief operating officer and first deputy comptroller of the Office of the Comptroller of the Currency, which charters, regulates, and supervises banks and savings associations in the United States.
On Feb. 19, Coinbase became the first “pure-play cryptocurrency company” authorized to issue its own Visa-branded debit cards rather than running them through an expensive bank or payment processor. While there’s no timetable for rolling it out in the U.S. yet, Coinbase called the card a “significant milestone in the mainstream adoption of crypto as a genuine utility.”
Launched in 2014 by Tyler and Cameron Winklevoss—the twin Olympians best known for suing Mark Zuckerberg for stealing their idea for the predecessor to Facebook—Gemini Trust Company has SOC 1 and SOC 2 type 1 audits. Theirs are from Deloitte.
Gemini has also launched its own insurance company and has hooked up with payment processor Flexa to create a digital wallet that lets users spend bitcoins or Gemini dollars at businesses like Starbucks and Whole Foods.
The company even ran a “crypto needs rules” ad campaign in early January, earning the ire of crypto libertarians.
Updated at 11:30 a.m. on May 15, 2020 to reflect that Gemini has an NYDFS Trust License rather than a BitLicense.