JPMorgan Chase is considering allowing Bitcoin (BTC) and Ethereum (ETH) to be used as collateral for loans, representing a significant departure from the bank’s previously skeptical stance on cryptocurrencies, particularly that of CEO Jamie Dimon.
This initiative encounters major regulatory obstacles stemming from the Basel III banking accords. These rules currently impose a punitive 1,250% risk weighting on crypto exposures, compelling banks to hold $1 in capital for every $1 loaned against digital assets.
To navigate constraints prohibiting US banks from holding cryptocurrencies directly on their balance sheets, JPMorgan is expected to utilize third-party custody services, such as Coinbase, for managing the collateral.
The exploration of crypto-backed lending is partly driven by the strong risk-adjusted returns demonstrated by Bitcoin, as measured by the Sharpe ratio, which has heightened its appeal as an institutional asset class.
JPMorgan’s potential move aligns with a broader trend in traditional finance, where firms like E*Trade and Citigroup are also expanding their exploration of cryptocurrency-related services despite ongoing regulatory uncertainty.