Crypto derivatives trading is likely to shift to regulated venues, and the Chicago Mercantile Exchange is expected to emerge as a winner, the bank said.
Crypto market regulatory initiatives that are already underway are likely to be accelerated in the wake of the collapse of crypto exchange FTX and sister company Alameda Research, JPMorgan said in a research report Thursday.
For example, after the European Parliament gives final approval to the European Union’s Markets in Crypto Assets (MiCA) bill, it will take 18 months before the regulation takes effect but FTX's collapse could shorten the timeline, the report said.
The bank notes that U.S. regulatory initiatives garnered more interest after the Terra network collapsed in May because of a “perceived need for increased oversight and consumer protections.” The collapse of crypto exchange FTX this month is also likely to lead to a greater sense of urgency.
Regulatory initiatives are likely to emerge focusing on custody and protection of customers’ digital assets, the unbundling of broker/trading/lending/clearing/custody activities, and transparency and the reporting of reserves, assets and liabilities, the note said.
JPMorgan says crypto derivatives trading will probably shift to regulated venues, and the Chicago Mercantile Exchange will likely to benefit from that change.
The bank says it is “skeptical of a structural shift” away from centralized exchanges to decentralized exchanges (DEXes). DEXes wouldn't work for the size of orders coming from larger institutions because of slower transaction speeds or because the institutions’ trading strategies and order size would be traceable on the blockchain, the note said.
