JP Morgan Chase plans to let institutional clients worldwide use their Bitcoin and Ether holdings as collateral for loans. This development is expected to roll out by the end of the year, according to Bloomberg’s recent report, which cites anonymous sources.
The bank will work with a third-party custodian to manage the tokens used as collateral. It’s worth noting that JPMorgan had thought about lending against Bitcoin back in 2022, but that plan didn’t move forward, as per Bloomberg.
This latest initiative comes at a notable time when the cryptocurrency market is expanding, regulatory frameworks are becoming less strict, and there’s a growing demand from customers for support involving cryptocurrencies.
In June, there were indications that JPMorgan Chase intended to offer loans backed by a Bitcoin exchange-traded fund (ETF). This program is set to be implemented globally across both retail and institutional sectors, allowing clients’ Bitcoin ETF holdings to be factored into their net asset and liquidity calculations.
As reported back in June, the use of crypto asset collateral is gaining traction in traditional finance and lending spaces. Bitcoin is increasingly being recognized as collateral for loans provided by major banks, serving as an important factor in assessing applicants’ net worth and liquidity, which are crucial for loan approvals.
Goldman Sachs has already been accepting Bitcoin as collateral since 2022. In March, the Office of the Comptroller of the Currency issued a letter that retracted earlier guidelines on cryptocurrencies, thereby enabling banks and lenders to adopt digital assets within secured lending operations.
In April, both the Federal Deposit Insurance Corporation and the Federal Reserve rescinded previous warnings that had impacted banks’ engagements with cryptocurrencies. The retracted statement highlighted risks associated with crypto assets and the liquidity concerns stemming from market vulnerabilities.
In addition to removing those guidelines, the Fed announced plans to overturn its 2022 Supervisory Letter, which required state member banks to give advance notice regarding crypto-asset activities, as well as its 2023 letter concerning a supervisory no-challenge process for state banks involved in dollar token activities.
