By Paul Vigna 

JPMorgan Chase & Co. has taken on two well-known bitcoin exchanges, Coinbase Inc. and Gemini Trust Co., as banking customers, according to people familiar with the matter, the first time the bank has accepted clients from the cryptocurrency industry.

The move is the latest in a string of positive developments for bitcoin and another sign that Wall Street is becoming more comfortable with the business of cryptocurrencies.

Coinbase, founded in 2012, is the largest U.S.-based bitcoin exchange, with more than 30 million accounts. Gemini, founded in 2014 by Tyler and Cameron Winklevoss, is a smaller exchange, but it has been in the vanguard of the industry's movement to attract mainstream clients and embrace regulation.

The accounts were approved in April, and transactions are just starting to be processed, the people said.

The bank is primarily providing cash-management services to the firms and handling dollar-based transactions for the exchanges' U.S.-based customers, according to the people. It will process wire transfers, and deposits and withdrawals through the Automated Clearing House network, an electronic funds-transfer system.

Although Coinbase and Gemini are built around trading cryptocurrencies, many of their customers link traditional bank accounts to their accounts on the exchanges. Handling transfers in and out of those bank accounts requires a payments processor.

JPMorgan's services don't extend to any bitcoin or cryptocurrency-based transactions. The firms handle those themselves.

What is notable is that JPMorgan was willing to extend services to businesses built around bitcoin. Such businesses have for years been blocked by banks from opening up accounts. Bankers were concerned with exposing themselves to bitcoin's shadier uses, like money laundering, and the added glare from regulators.

Coinbase and Gemini had to go through a long vetting process to get JPMorgan's approval, the people said. What separates the exchanges from others in the space is the degree to which they have become regulated entities. The fact that both are regulated by multiple parties played a big part in the approval process.

Gemini obtained a trust charter from the New York State Department of Financial Services in 2015. Coinbase is registered as a money services business with Financial Crimes Enforcement Network, or FinCEN, and also has a specialized license for crypto businesses, called the BitLicense, from the DFS. Both are licensed as money transmitters in multiple states.

Bitcoin has had a run of good news lately. The price has more than doubled from its March lows, recently touching $10,000, though it is still more than two years removed from its all-time high of $19,800. Trading volumes hit record highs in April and March as investors became interested in the digital currency as a hedge against volatility in traditional markets.

Meanwhile, more Wall Street traders are in the market as well. Average daily trading volume this year of CME's bitcoin futures contract has risen 43% from the same time frame a year ago, the exchange said. Nearly 850 new accounts have been opened this year, more than twice as many as a year ago. Popular vehicles for institutional investors, including the Grayscale Bitcoin Trust, an over-the-counter ETF, have seen increased activity as well.

For JPMorgan, the new relationship with Coinbase and Gemini is the latest step in what has been a long and sometimes acrimonious relationship with digital money. Chief Executive Jamie Dimon has been a high-profile critic of bitcoin in the past. But the bank itself experimented extensively with blockchain, bitcoin's underlying technology, and more recently implemented its own digital currency, JPM Coin, for digital payments among its clients.

Write to Paul Vigna at paul.vigna@wsj.com

 

(END) Dow Jones Newswires

May 12, 2020 07:14 ET (11:14 GMT)

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