JPMorgan Opens Bitcoin-Backed Lending as Wall Street Pushes Deeper Into Crypto

JPMorgan Chase is letting institutional clients use Bitcoin and Ethereum as collateral against loans denominated in US dollars. The move brings the most popular crypto tokens even further into the world of customary credit. The tokens will be held by third-party custodians while clients are able to access dollar liquidity.

It also marked another step in JPMorgan’s broader digital assets strategy despite CEO Jamie Dimon’s long-standing disdain of Bitcoin, with the firm having spent years building out its blockchain infrastructure. 

The network’s Kinexys platform, formerly known as Onyx, supports institutional payments, settlements and tokenized assets, with an estimated $5 billion worth of transactions being processed by the network every day, according to JPMorgan.

The collateral model functions like customary securities-backed lending, where institutional borrowers deposit Bitcoin or Ethereum with an approved third-party custodian who verifies ownership of the asset. 

This crypto is used as collateral for a customary dollar loan. JPMorgan does not own the tokens. However, values of any collateral are continually tracked, and margin requirements can be adjusted accordingly.

With custody separate from lending, the bank extends the credit while a third-party custodian holds the digital assets, with the question of whether more collateral is required determined by other lenders in the market. This is different from most DeFi protocols, where collateral and borrowing sit in the same smart contract.