JPMorgan Chase (JPM) reported that plans to offer cryptocurrency trading to institutional clients could reshape the competitive landscape but would not necessarily hurt rivals.
Analysts said the Wall Street giant’s addition could benefit existing players such as Coinbase (COIN), Bullish (BLSH) and Galaxy Digital (GLXY), although it signals more competition ahead.
“If JPMorgan offers cryptocurrency trading to institutional clients, it will have a huge positive impact on the space,” ClearStreet analyst Owen Lau said. “This would further legitimize cryptocurrencies and increase distribution channels,” he continued. “The domino effect could spread to other banks. Coinbase and Bullish are well-positioned to benefit from this large distribution channel aggregating and matching institutional orders.”
“JPMorgan is a broker and they may use exchanges to match orders,” Liu continued. This opens the door for platforms like Coinbase Prime and Bullish, which already offer institutional-grade cryptocurrency execution, to play a key role in the settlement of these trades.
Read more: JPMorgan weighs institutional cryptocurrency trading amid growing demand
Still, the move puts new pressure on existing businesses. Compass Point’s Ed Engel wrote in a report last week that while Wall Street’s increasing involvement in cryptocurrencies “expands the addressable market for digital assets,” it also intensifies competition.
“Companies like GLXY and BLSH benefit from higher institutional participation, while COIN and Circle Financial (CRC)L are at risk of margin pressure,” Engel wrote.
Engel said that as institutional cryptocurrency activity increases, trading volumes in spot and derivatives markets are likely to increase, as well as demand for lending and custody services, areas where crypto-native companies have already built infrastructure. However, low-touch services such as basic spot trading may face downward pressure on fees.
“We believe GLXY is a major beneficiary of Wall Street adoption of cryptocurrencies due to its focus on primary trading, derivatives and high-touch prime brokerage services,” Engel wrote. “BLSH could also benefit from Wall Street adoption as it already offers the lowest spot rates globally.”
Analysts believe that JPMorgan’s potential entry could attract more traditional institutions to the cryptocurrency market. But it won’t replace existing platforms, but may push them deeper into the institutional financing pipeline – matching trades, providing custody and providing risk management tools.
In practice, this might look like a pension fund trading cryptocurrencies through a traditional Wall Street bank, only to execute on Coinbase Prime or Bullish. The more demand there is from JPMorgan and any major lenders entering the system, the more liquidity these platforms will be able to capture.
As of now, JPMorgan has not confirmed the launch of cryptocurrency trading for institutional clients, but as the bank gradually becomes interested in the industry, including launching its own stablecoin and exploring blockchain settlement tools, such a move seems more likely.
