JPMorgan Thinks Crypto Has One Big Problem Before It Scales

Banking giant JPMorgan is calling for stronger regulation of digital assets as the industry continues to expand into everyday banking and financial systems.

In an official blog published on Monday, Umar Farooq, global co-head of JPMorgan Payments, and Peter Muriungi, CEO of Digital Assets and Blockchain Solutions, said that if regulation stays weak, digital asset products could operate like banks, brokers, and exchanges without following the same rules, creating risks for users and the wider financial system. They said U.S. regulators need to close gaps and ensure rules keep up with how fast digital finance is growing.

“That evolution brings both promise and risk, which is why the United States must take great care in how it establishes a framework for digital assets,” they said. 

What regulation should focus on

In their statement, the executives said what matters is not what a product is called, but what it actually does. If a digital asset behaves like a security, it should follow the same rules as other securities, including clear information for investors, safe custody of assets, and fair market practices.

Similarly, if a decentralized platform acts like a broker or exchange, then it should follow similar rules. They made this point clearly, saying, “Labeling matters less than substance,” meaning the real function of the product is more important than what it is called.

Stablecoin rewards and bank-like risks

The executives also addressed stablecoin rewards and incentives, saying these products can resemble interest earned on bank deposits.

However, unlike bank deposits, they are not backed by the same safeguards, such as capital requirements, liquidity standards, or government-backed deposit insurance. According to JPMorgan, this could lead users to overestimate the safety of these products and increase the risk of panic withdrawals during periods of market stress.

How money flows could affect traditional lending

They also warned that if significant amounts of money move from traditional banks into stablecoin products, banks could have fewer deposits available to support lending.

That could affect businesses and everyday people who depend on credit. In simple terms, less money in banks could mean less lending in the economy. They also raised concerns that decentralized finance platforms may not have strong enough checks against illegal activity. Without strong anti-money-laundering rules, it could become harder for authorities to track who is moving money and why.

JPMorgan’s push for blockchain inside regulation

At the same time, JPMorgan said it continues to develop blockchain-based financial infrastructure. The bank highlighted JPM Coin, launched through its Kinexys platform, which allows financial institutions to transfer funds almost instantly at any time of day. It is also working on tokenization initiatives and digital payment systems for institutional and retail customers.

According to JPMorgan, these projects demonstrate that blockchain technology can deliver benefits when deployed within a regulated financial framework. The bank said innovation should continue but must be controlled with strong rules. It warned that if laws focus only on moving fast without fixing risks, it could create more problems later.

Ongoing debate over the CLARITY Act

The comments come as the United States continues debating the CLARITY Act, legislation intended to define how digital assets are regulated and which agencies oversee the crypto market

In a recent development, the White House has reportedly been working with law enforcement agencies and industry groups to keep the bill on track. Officials have been meeting with stakeholders to resolve concerns around anti-money-laundering rules, especially Section 604, also known as the Blockchain Regulatory Certainty Act.

At the same time, negotiations around the bill are now happening behind closed doors, involving lawmakers, administration officials, and crypto industry representatives. With the Senate in recess until July 13, the next few weeks are seen as very important for shaping the final version of the law. 

Also Read: BIS Warns Stablecoins Fuel Dollarization and Threaten National Banks