Trad-Fi Meets DeFi
The wolf has entered the hen house! In a move that was a surprise to me, JP Morgan unveiled its virtual world in mid February. The “Onyx Lounge” is now part of the blockchain-based virtual world of Decentraland.
In this week’s edition of Crypto Crier’s Newsletter we were talking about the impact lobbyists are going to have on the crypto space as we head into the mid-term elections in the USA. One of the reasons I enjoy writing is I find I learn a lot through the creative process as I research my topics. Oddly enough, my writing process causes me to read a lot more. I usually start out with bullet point ideas which I then adapt into full thoughts. I usually do not know where the creative process will take me and I try and let it go where it needs to organically.
I had made a notation that I wanted to reference JP Morgan and Jamie Dimon as they are influential in the world of finance. Jamie has previously been pretty outspoken with his views on crypto, in particular in 2017 when he very publicly stated he would fire any employee trading bitcoin. So I was more than a little surprised when I came across this report which was issued by JP Morgan to go along with their Metaverse announcement. I guess in retrospect I shouldn’t have been surprised, as banks know how to make money. Where money goes, you can bet there are bankers itching to get their paws on it.
With that said, I felt it could be an interesting exercise to dig into the JP Morgan report, share some of its key points as well as a few of my own opinions on what they are up to as well as what it means for the space. Early in the report they state:
“The metaverse will likely infiltrate every sector in some way in the coming years, with the market opportunity estimated at over $1 trillion in yearly revenue. As a result, we see companies of all shapes and sizes entering the metaverse in different ways, including household names like Walmart, Nike, Gap, Verizon, Hulu, PWC, Adidas, Atari, and others.”
As noted above, banks will always follow the money. When they see big name brands, making large value investments this is sure to grab their attention in a hurry. For more than a century major financial institutions have been in control of the flow of money. Crypto and the decentralized block chain obviously puts that control at risk. A loss of control equates to a loss of potential revenue. A quick look at their Q4 results shows just how lucrative the banking business is.
In answering the question of Why Now, the report states:
“We are now at an inflection point, where it seems that not a day goes by without a company or celebrity announcing that they are building a presence in a virtual universe. …..
Blockchain has enabled digital currencies and NFTs. The new methods to transact and own digital goods are allowing creators to monetize their activities through tokens. In addition to monetization, and as a means to exchange value, token-holders can also participate in the platform’s governance (e.g. vote on decisions). This democratic ownership economy coupled with the possibility of interoperability, could unlock immense economic opportunities, whereby digital goods and services are no longer captive to a singular gaming platform or brand…….
I find this part quite interesting. IMO they are admitting they (our current financial system) are in quite a vulnerable position. Traditional banks gained leverage over customers by trying to lock them into multi products and services to make the cost of change more difficult. This is why they will offer incentives to add a credit card to your file along with your chequing account. Need a mortgage, combined with the others maybe we’ll knock 1/4 point off the rate for your “loyalty”. Their choice of words when they say “no longer captive” is perhaps the most telling phrase in the whole report.
When talking about Metaverse, and in particular land (which you know I am a big fan of) they talk about the huge increase in pricing after the big Facebook Meta announcement.
“The average price of a parcel of land doubled in a six-month window in 2021. It jumped from $6,000 in June to $12,000 by December across the four main Web 3.0 metaverses.11 Partly this growth has been because brands have been buying up space so they can create virtual stores and other experiences. In June 2021,”
“In time, the virtual real estate market could start seeing services much like in the physical world, including credit, mortgages and rental agreements. However, with the emergence of decentralized finance (DeFi), collateralized lending primitives and the composability of blockchain token-based digital assets, a next-generation financing company could potentially leverage digital clothing as collateral to underwrite virtual land and property mortgages. In fact, the financing company may not be a company at all, but instead, a selforganizing, mission-based community of people (who may not have met at all in person), also known as a decentralized autonomous organization (DAO). The DAO may have seeded its original balance sheet into a multi-signature wallet to create the mortgages. An additional layer of tokenomics to incentivize certain participant or community behaviors creates another level of gamification and commercialization.”
To me, again this is JP Morgan admitting big banks are vulnerable to the rapid pace of change we are seeing in the world. I have often lived by the advice, ignore what they SAY, but monitor what they DO. Jamie Dimon may have sworn up and down crypto was a bubble, or a scam, yet here they are entering the space in a big way. This should cause you to pause and consider the direction you are taking. They close off the report by stating:
“The components of the metaverse continue to evolve very quickly. It is difficult to base a business strategy on such a dynamic space, characterized by explosive growth and the continuous innovation of new entrants. However, the costs and risks of engaging early and consistently in order to build internal intellectual property, develop hypotheses about future business models, and identify ecosystem partners and collaborators are relatively low. The asymmetrical risk of being left behind is worth the incremental investment needed to get started and to explore this new digital landscape for yourself.”
To sum up what they are saying in my words, we are still early but the clock is ticking. The biggest risk is being on the sidelines while generational wealth is created. This may be tough to see the forest through the trees with all that’s going on in the world right now (as I wrote about here) but I truly believe we are on the precipice of a seismic shift in our financial system. After-all, JP Morgan led to the creation of the Federal Reserve, if I were to bet on someone predicting its downfall they seem to be a safe bet. So keep DCA your funds, keep to your strategy and keep your stick on the ice.