Jacquelyn Melinek

<div id="highlights-block_621d0bb093c84" class="highlights">
 <ul>
 <li>This investment highlights the significance financial institutions investing in crypto technology to mitigate associated risks, Esteban Castaño, co-founder and CEO of TRM, said to Blockworks</li>
 <li>TRM’s vision aligns with JPMorgan’s ambitions to build compliant and secure blockchain products, Umar Farooq, CEO of Onyx by JPMorgan, said in a statement</li>
 </ul>
 
</div>



Blockchain intelligence company TRM Labs has added JPMorgan Chase &amp; Co. to its list of investors after the bank announced its strategic investment on Monday.



The total amount invested by JPMorgan was not disclosed, and neither organization was available for immediate comment.



TRM provides blockchain intelligence to help traditional financial institutions as well as crypto-focused businesses and public agencies analyze and manage crypto-related fraud and crime.



“I think it shows that financial institutions are not investing in just crypto and potential use cases but the technology to mitigate any associated risks,” Esteban Castaño, co-founder and CEO of <a href="https://www.trmlabs.com" target="_blank" rel="noreferrer noopener">TRM</a>, said to Blockworks. “It reflects the long term mindedness of the industry and figuring out what’s the right answer for crypto in terms of risk management, trust and safety.”



The company was founded in 2017 and recently closed its <a href="https://cms.blockworks.co/trm-labs-lands-60-million-series-b-round/" target="_blank" rel="noreferrer noopener">$60 million Series B</a> in December 2021. The round at the time was led by Tiger Global and included other major investors and financial players including American Express’ Amex Ventures, Citi Ventures, PayPal Ventures, Visal, Block <a href="https://cms.blockworks.co/jack-dorseys-square-to-change-its-name-to-block/" target="_blank" rel="noreferrer noopener">(formerly Square Inc.</a>) and Jump Capital.



“People often cite that financial institutions are ‘here’ and I think that’s more true now than ever before,” Castaño said. “Today we see countless financial institutions that have tangible projects in flight for crypto related projects and services and they’re making investments in risk management infrastructure so those products can be successful, trusted and safe for consumers.”



JPMorgan has spent the last six years exploring the possibilities and applicability of blockchain technology, Umar Farooq, CEO of Onyx by JPMorgan, said in a statement. TRM’s vision aligns with JPMorgan’s ambitions to build compliant and secure blockchain products, Farooq added.



Earlier this month, JPMorgan took a jump into the metaverse after launching a virtual lounge in the popular blockchain-based metaverse Decentraland. The “Onyx lounge” was unveiled with a report from the bank outlining metaverse-related growth opportunities, Blockworks previously <a href="https://cms.blockworks.co/jpmorgan-enters-the-metaverse-with-virtual-decentraland-lounge/" target="_blank" rel="noreferrer noopener">reported</a>.



Separately, two JPMorgan research analysts Kenneth Worthington and Reginald Smith said in a report they see 2022 potentially as “the year of the blockchain bridge…or the year of financial tokenization.” The analysts also said they expect the evolution of crypto markets to accelerate this year, particularly for financial services, Blockworks <a href="https://cms.blockworks.co/jpmorgan-2022-could-be-year-of-the-blockchain-bridge/" target="_blank" rel="noreferrer noopener">reported</a> in January.



“Trust and safety is a prerequisite for crypto to be successful in the long run,” Castaño said. “Blockchain intelligence builds greater trust and safety and enables crypto to become the next dominant financial system of the world.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



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JPMorgan Chase Strategically Invests in Blockchain-focused TRM Labs

Ben Strack

<div id="highlights-block_61d87ecaab10a" class="highlights">
 <ul>
 <li>Ethereum’s use cases are far more significant than bitcoin’s, JPMorgan research analysts Kenneth Worthington and Reginald Smith wrote in a report published Friday</li>
 <li>The analysts see potential for tokenization within financial services as transactions speeds in crypto become more competitive with traditional finance networks</li>
 </ul>
 
</div>



While many in the crypto community summarized 2021 as the year during which NFTs saw massive growth, JPMorgan analysts predicted that greater interoperability of various blockchains and financial tokenization could be this year’s hallmarks.



If 2021 was the year of the NFT, we see 2022 as possibly the year of the blockchain bridge…or the year of financial tokenization,” JPMorgan research analysts Kenneth Worthington and Reginald Smith wrote in a report published Friday.



<blockquote class="wp-block-quote">“As such, we see the cryptocurrency markets as increasingly relevant to financial services.”</blockquote>



Worthington and Smith said that they expect the evolution of crypto markets to accelerate this year, particularly for financial services, if greater capacity and transaction speeds are achieved by upgrades to the Ethereum blockchain or new layer-2 initiatives.



<h3 class="wp-block-heading">Ethereum versus bitcoin</h3>



“If bitcoin is digital value, Ethereum is a digital canvas or software platform that allows developers to create new crypto and traditional applications,” the JPMorgan analysts wrote.



<blockquote class="wp-block-quote">“[Ethereum’s] use cases are far more significant than what we see for bitcoin.”</blockquote>



Currently, network congestion on Ethereum has driven the prices up to around $50 per transaction, the JPMorgan report states, noting that Ethereum also “doesn’t communicate well with other blockchains,” although they don’t elaborate on what they mean by this.&nbsp;



Ethereum’s layer-1 network favors security and decentralization over scalability, and processes roughly 15 transactions per second. That&#8217;s compared to Mastercard’s network, which can process about 5,000 transactions per second. But layer-2 networks will address transaction throughput while inheriting Ethereum’s security.



“Solana is much faster than Ethereum. Cardano is more scalable. Polkadot is more interoperable,” the analysts noted. “These advantages could allow these other chains to chip away at Ethereum’s dominance and market value as they facilitate the development of new projects levering Ethereum limitations.”



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="568" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg" alt="" class="wp-image-13663" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Ethereum-Market-Share-chart-1024x568.jpg?w=1918 1918w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



An Ethereum upgrade is expected in mid-2022 and will convert the blockchain from proof-of-work to proof-of-stake. It will ultimately alleviate some of the concerns around speed, costs and scalability, they suggest.



While the technology backing bitcoin is significant, the use cases for Bitcoin are “rather one-dimensional” when compared to Ethereum, Worthington and Smith said.



“Relative to gold, we see Bitcoin is at least or more durable, portable, fungible, visible, scarce, verifiable and free from censorship,” the analysts explained. “However, Bitcoin falls short of gold in its history as a store of value.”



Worthington and Smith pointed to bitcoin’s limited history compared to gold, adding that bitcoin’s price volatility levels are materially higher than other asset classes including gold, the US dollar, equities and commodities.



The price of bitcoin was roughly $41,700, as of 1:30 pm ET on Friday, according to CoinGecko. The asset, which carried a market capitalization of about $800 million at the time, had hit an all-time-high of more than $68,000 in November. 



Ethereum’s price and market cap was at about $3,200 and $380 million, respectively.



<h3 class="wp-block-heading">Tokenization and DeFi in financial services</h3>



Transaction volumes on NFT marketplace OpenSea grew exponentially in 2022.&nbsp;



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="535" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg" alt="" class="wp-image-13664" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/OpenSea-Chart-1024x535.jpg?w=1954 1954w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



But the JPMorgan analysts said the segment is in its early stages, as tokenization could hold the greatest potential within financial services — particular for illiquid assets that could benefit from price discovery, liquidity, asset servicing and asset composition.



“In our future we see the tokenization (and fractionalization) of credit, equities, parts of real estate (commercial to residential to hotel rooms), and non-traded investments including private equity,” they wrote.



Though the JPMorgan analysts argued that decentralized finance (DeFi) was “a bit of a flop” in 2021, it has strong potential, as they said the traditional financial system today “has more intermediaries than it probably needs.”



Traditional Financial Services firms are embracing the crypto ecosystem to make traditional financial offerings better.&nbsp;



“Here, we see traditional financial services on the front-end, but DeFi powering the back-end,” Worthington and Smith noted. “However, we see the current regulatory environment (really the lack of Federal Crypto Rules and Regulation) limiting the presence that traditional finance can have in crypto.”&nbsp;



<h3 class="wp-block-heading">Coinbase is a buy</h3>



The JPMorgan analysts also noted the potential of Coinbase’s stock, calling the exchange “a leading direct beneficiary of cryptomarket growth.”



Coinbase, which had 73 million verified users as of the end of the third quarter, <a href="https://cms.blockworks.co/coinbase-is-going-public-today-heres-what-to-expect/" target="_blank" rel="noreferrer noopener">became a public company</a> in April. 



Bill Miller made <a href="http://v" target="_blank" rel="noreferrer noopener">similar comments about Coinbase</a> in October, when he said during an interview with author William Green that it could be “the default position for growth investors” that want exposure to the crypto market without investing directly in crypto assets. He added at the time that Coinbase could reach a $1 trillion market capitalization.



Bank of America analyst Jason Kupferberg <a href="https://cms.blockworks.co/bank-of-america-coinbase-revenue-diversification-to-accelerate-in-2022-and-beyond/" target="_blank" rel="noreferrer noopener">upgraded his rating of Coinbase</a> from neutral to buy this week. He wrote in a research note published Thursday that the company’s increasing signs of revenue diversification beyond retail crypto trading could spur increased interest in the stock among institutional investors.



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