Bitcoin Becomes Safe Collateral: JPMorgan To Offer Loans Financed With Crypto Assets

Less than 8 years ago, when bitcoin was trading at $4,000 (compared to $104,000 today), Jamie Dimon demonstrated once again that he may be an ok big bank CEO (after all, without TARP JPMorgan would not exist today), but he is a terrible visionary when he warned his traders that anyone caught trading bitcoin”would be fired.”

Fast forward to today, then, when not only will Jamie (who at almost 70 should really be thinking succession) not fire anyone at JPM for trading the best performing asset of the millennium, if not all time, but according to Bloomberg JPM will soon allow trading and wealth-management clients use some cryptocurrency-linked assets as collateral for loans, a major step by the biggest US bank to make inroads into an industry President Donald Trump has pledged to support.

According to the report, the firm will start providing financing against crypto exchange-traded funds, beginning with BlackRock’s iShares Bitcoin Trust (IBIT), in the coming weeks, people familiar with the matter said. The move marks the latest effort involving crypto among the biggest US banks after the Trump administration started removing regulatory barriers.

Just as importantly, JPMorgan – which until now refused to add crypto to the calculation of net worth – will also begin taking wealth-management clients’ crypto holdings into account when assessing their overall net worth and liquid assets, the people said, asking not to be named as the plans aren’t public. That means cryptocurrencies will be given similar treatment to stocks, cars or art when calculating how much a client can borrow against their assets.

Which, incidentally, is precisely what we predicted last November when we said that Bitcoin is about to become “safe collateral.”

Bitcoin is about to become “safe collateral”

Cantor Fitzgerald is discussing receiving support from Tether for its planned multibillion-dollar program to lend dollars to clients who put up Bitcoin as collateral: BBG

— zerohedge (@zerohedge) November 24, 2024

JPMorgan was one of the first major banks to start using blockchain technology for services like payments, and counts crypto exchanges like Coinbase among its clients. Which is ironic because its CEO remains a vocal crypto skeptic, and while he won’t fire the firm’s bitcoin traders, he said as recently as the firm’s investor day in May that he’s “not a fan” of Bitcoin, but that JPMorgan would allow clients to buy it.

“I don’t think we should smoke, but I defend your right to smoke,” Dimon said at the time. “I defend your right to buy Bitcoin, go at it.”

And starting in the next few days, Dimon will start issuing cigarette-backed loans… pardon bitcoin-backed.

The fact that IBIT – and soon all other crypto assets- will be eligible collateral, means that large holders no longer need to sell when they need access to liquidity, but can simply pledge their IBIT for immediate funding needs, breaking the loop of forced liquidations which until recently allowed coordinated short attacks to pressure the market at will. In fact, with IBIT pledgable, it will allow what many have called a perpetual cycle of buying bitcoin, using it to issue loans, then using the loan proceeds to buy even more bitcoin, a cycle which was responsible for much of the cryptocurrency surge in the 2020-2021 period. 

Big banks have been making plans to give clients access to crypto this year, responding to client demand and a more favorable regulatory environment. Rival Morgan Stanley is working on a plan to add cryptocurrency trading to its E*Trade platform, Bloomberg reported last month.

It’s not just bitcoin: the overhaul at JPM will also benefit holder of Ether as other crypto ETFs are expected to be included after the change is made. 

Spot-Bitcoin ETFs were introduced in the US in January 2024 and have swelled to oversee a combined $128 billion, making them one of the most successful launches ever. Meanwhile, the cryptocurrency itself has skyrocketed since Trump won the presidential election last November, reaching an all-time high of $111,980 in May. The Bloomberg report helped push the price of both bitcoin and ether near session highs.

As for what happens next, we predicted that as well last December when we said that it is just a matter of time before the “creative” bank that came up with Credit Default Swaps issues a bitcoin SPV that offers institutional buyers a 5% coupon (before leverage).

We are probably weeks away from JPMorgan offering a bitcoin SPV to institutions which pays a 5% coupon (before leverage)

— zerohedge (@zerohedge) December 5, 2024

We are confident that this will very soon happen.