The Psychology Behind: the JP Morgan Coin

This article is part of a series we are publishing titled “The Psychology Behind…” where we take a social scientific look at some of the underlying phenomenon that is occurring in the world of stablecoins, and the larger blockchain space.

On a quiet fall day in late October, 2020, PayPal announced that it would officially allow for the buying and selling of digital currencies directly from its digital wallet. Not to be outdone, JP Morgan shortly announced that its stablecoin — the JP Morgan Coin (JPM) has officially been used in commercial transactions. While the details were vague, its effects on the industry both present and future, are not.

The psychology behind JPM and what PayPal announced is simple, yet striking. PayPal simplified consumer transactions for its 300+ million US users. But the focus was on individual users, rather than the thousands of corporations who partake in JP Morgan’s 6 trillion annual cross border payments. In addition, JP Morgan also announced that a “large” technology client has used its stablecoin for cross-border payment, while they are onboarding hundreds of more corporations.

But this article isn’t about how JPM can redefine remittance, or international banking. Rather, we want to look at the underbelly of the psychological mind frame.

The timing of this announcement is reminiscent of when Amazon announced it going into groceries, by acquiring Wholefoods. Not only does it raise the overall valuation of the sector, but it also puts their competitors on notice. Other stablecoins, like USDT or even DAI now have to seriously reconsider their enterprise strategies to properly position themselves against JP Morgan. While we’re at it, the name JP Morgan issues a sense of safety and trust amongst some of the wealthiest people on earth. If the bank that these people trust is now issuing stablecoins, it means that they soon will slowly adopt stablecoins. This trickle-down effect will be felt rather quickly, as higher income households might transition to stablecoins through JPM rather than BUSD — which will create a halo effect around JPM. So even though on the surface, 1 JPM is no different from 1 USDS since they are both pegged to the USD and backed by fiat currency, the halo effect from the wealthy holding JPM could drive the demand beyond where Tether or Binance is sitting currently.

You can imagine the stablecoin market as being sandwiched by two (vertical) mountains. DeFi, and the stablecoins we’ve seen explode on the market in 2020 are moving from the bottom up — as in, they are fighting for most individuals, and crypto enthusiasts, and working hard to identify better use cases. On the other hand, JP Morgan is going top down — with a pre-existing use case (cross border payments) and an ample amount of corporations and clients ready to save money (upwards of $6 trillion worth).

This was a highly calculated, strategic move by JP Morgan, who has created a new business unit named ONYX with over 100 staff members to see its cryptocurrency development. Surely, this will raise the overall demand for stablecoins, but the long-term results of this are still hanging in the air. Only time will tell if JP Morgan’s strategy is based on some sort of FOMO or it’s a real attempt at migrating their business needs but it’s probably a good time to look deeper into stablecoins nonetheless.