Today the Financial Times reported that JP Morgan is considering providing loans against cryptocurrency holdings, citing sources. In early June Bloomberg published a similar story saying the bank had begun accepting crypto ETFs as collateral for loans to wealthy clients. Previously, it considered using crypto holdings for net worth evaluations, but now it’s exploring loans backed directly by digital assets.
There are several important differences between crypto ETFs and native cryptocurrencies from the bank’s perspective. Crypto ETFs are technically stocks and fit nicely into existing JP Morgan systems as well as legal frameworks. With cryptocurrencies the bank has to put systems in place to technically secure its collateral, potentially taking custody of the crypto. But it’s the legal area that has changed most between the Bloomberg and Financial Times reports.
Given that cryptocurrencies are intangible assets, they create legal challenges if they are used as security for a loan. The bank has to make sure that its legal hold over the assets is valid. A few years ago, that was problematic. In 2022 changes were made to the US Uniform Commercial Code (UCC) making it viable to treat cryptocurrency as collateral in a legally secure manner – to get a valid ‘security interest’. However, the UCC has to be adopted by each state, with around 30 implementing the changes so far. JP Morgan is based in New York and the State senate approved the UCC changes in mid-June. However, the Governor has yet to sign it into law.
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