Digest: JPMorgan’s Crypto Wallet Plans

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week, JPMorgan’s crypto wallet plans. 

America’s biggest bank has long had a love-hate relationship with crypto. The bank’s CEO, Jamie Dimon, is a longtime crypto skeptic. At various times, he has called bitcoin and crypto a fraud and “fool’s gold.”  

Yet, at the same time, the organization he heads—the world’s biggest bank by market capitalization—has been moving deeper and deeper into crypto.  

In 2020, it launched its own crypto token, called JPM Coin, which enables U.S. dollar deposit accounts on the blockchain (and it plans to allow euro-based deposit accounts on its blockchain soon). 

In August last year, it was revealed that JPMorgan had quietly given its wealth management clients access to six different crypto funds. 

And at the start of this month, the bank executed its first-ever cross-border decentralized finance (DeFi) transaction when it sent crypto tokens to DBS Bank in Singapore on the Polygon blockchain network. 

Now, it turns out JPMorgan may be planning to introduce crypto to its ordinary banking customers. 

On Nov. 15, the U.S. patent office granted the bank’s trademark application for the J.P. Morgan Wallet. 

According to a trademark lawyer, the patent is for a crypto wallet that would be able to hold digital assets such as bitcoin and facilitate virtual checking accounts. 

It appears JPMorgan is aiming to bring crypto to the masses. And it’s not alone… 

In October, global payments company Visa also filed patents in the U.S. over its plans to offer crypto transaction management and metaverse services. 

Meanwhile, back in June, American Express announced a partnership with a crypto company called Abra to develop a product that could reward users with crypto when they make purchases. 

So what does all this mean? 

Well, no question, this is a very difficult moment for crypto. The ongoing fallout from the collapse of the FTX exchange is weighing heavily on the market.  

But behind the scenes, the world’s biggest financial services companies are still developing this technology. That tells me that the future of crypto is far, far brighter than the naysayers in the mainstream media would have you believe. 

*** 

Next up…a warning from inside the Federal Reserve. 

For many months, I’ve been writing that the Fed was pushing up interest rates so far, so fast, it was going to push the economy into a recession.  

Now, someone else is making the same prediction: the Fed’s own economists. 

Recently released minutes from the Fed’s November meeting show the central bank’s own staff expressing alarm over the state of the economy due to higher borrowing costs and rising pressure on consumer spending. 

“Sluggish growth in real private domestic spending, a deteriorating global outlook, and tightening financial conditions were all seen as salient downside risks,” according to the minutes. Staff added that further interest rate rises could worsen the situation. 

Signs of this are everywhere. 

Exhibit 1: The Wall Street Journal posted two stories on the same day this week with the headlines: Stressed-Out Americans Plan to Buy Fewer Christmas Gifts, Donate Less to Charity and U.S. Home Sales Fall for Ninth Straight Month. 

The economy is teetering, which means the Fed will very soon have a binary choice to make: 1) keep raising rates and push the U.S. into a (deeper) recession, or 2) stop raising rates and accept that inflation will stick around for the long term. 

When it comes to this choice, the Fed will have to go for option 2. 

No central bank ever chooses a recession. 

Unless maybe it’s the Turkish central bank… 

*** 

Finally this week, Turkey doubles down on the world’s most dangerous economic experiment. 

While the U.S. tries to find a difficult balance between taming inflation and preventing a recession, Turkey is adopting a very different approach. 

Economic orthodoxy, or basic logic, says that if you want to reduce inflation, you need to raise interest rates. By raising rates, you make loans more expensive and you encourage savers to keep their money in the bank. This takes money out of the economy, which should lower demand and therefore reduce the prices of goods and services.  

Over in Turkey, however, the country is trying to prove the opposite. 

This week, Turkey’s central bank cut rates for the fourth consecutive quarter at the behest of the country’s unhinged, dictatorial president, Recep Tayyip Erdogan.  

In this latest round of cuts, rates were lowered by 1.5 percentage points to 9%. Yet, the inflation rate in Turkey is estimated at more than 85%, according to the official figures. (ENAG, a research group that studies inflation in Turkey, says the actual rate is likely above 185%.) 

This insane approach of lowering interest rates into a massive inflation crisis has predictably caused a currency collapse. 

Since this crisis began last year, the value of the Turkish lira has plummeted by more than half, as foreign investors lose confidence in the economy. This, in turn, has pushed millions of Turkish people closer to poverty. 

And yet Erdogan persists with this strategy, insisting that lowering rates will somehow lead to economic growth. 

Spoiler alert: It won’t. 

Erdogan is leading the Turkish economy off a cliff. And it’s part of a broader, more worrying trend.  

Politicians globally have gotten this idea in their heads that they can somehow bend the rules of math and economics to their will. We see this in Turkey with Erdogan. We saw it in the U.K., when short-lived Prime Minister Liz Truss tried to borrow massively to fund tax cuts, only to see the value of the pound collapse. And we see it in the U.S. with the growing acceptance of the idea that deficits don’t matter. 

But this only ends one way.  

As Truss found out, and Erdogan will soon discover…in a battle between governments and the markets, the markets win. Always. 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.