JPMorgan Chase (JPM) said Monday that it will make a "strategic investment" in blockchain analytics startup TRM Labs, becoming the latest Wall Street giant to increase its presence in the cryptocurrency space.
TRM and others' analytics software has become a top choice for regulators and law enforcement organizations looking to monitor the flow of illicit cryptocurrency transactions. Banking giant Bank of New York Mellon said last week that it would begin integrating similar analytics capabilities from Chainalysis.
According to Esteban Castano, co-founder and CEO of TRM, JPMorgan's investment "clearly demonstrates the relevance of the expanding cryptocurrency economy and the need to build trust and security in this ecosystem to continue its growth."
Customers of these blockchain companies
While companies such as Chainalysis, TRM Labs and Elliptic deal with a growing number of large financial firms, most of their clients are not disclosed.
The United Nations Office on Drugs and Crime (UNDOC), the IRS, leading UK fintech Revolut and online trading company Robinhood all use blockchain analytics to monitor cryptocurrency transactions.
TRM's final round of financing
Late last year, TRM disclosed a $60 million funding round led by Tiger Global, which also included the venture capital arms of American Express (AXP), Visa (V) and cryptocurrency venture capital firm Castle Island Ventures.
TRM has carved out a niche for itself by tracking cryptocurrency transfers across multiple blockchains, specifically the Solana (SOL-USD) blockchain. Cryptocurrency custodian bank Anchorage Digital is one of its clients.
JPMorgan Chase CEO Jamie Dimon has been an outspoken critic of the industry, but he has recognized the reality of the booming business that customers want to invest in. Earlier this month, the bank made a splash in the virtual world with the launch of a virtual lounge on Decentraland, a cryptocurrency-powered virtual reality platform.
Illegal activities in the market
Data shows that illicit flows into digital tokens decreased last year, despite the fact that the overall market value of cryptocurrencies more than quadrupled to $1.7 trillion in the same period. Nonetheless, escalating discussions about cryptocurrency regulation and a number of high-profile frauds have centered attention on the industry.
While compliance and security remain signature uses of blockchain analytics, Alkesh Shah, global cryptocurrency and digital asset strategist at Bank of America, sees the potential to leverage the transaction monitoring tools offered by TRM and similar companies "beyond the problem of illicit transactions. "
He recently told a media company to "help understand what's happening in these blockchain ecosystems." According to the concept, the software would allow institutional investors to better understand which blockchains "are succeeding and which are failing. "I don't know," he said.
TRM's solutions help clients reduce risk and comply with anti-money laundering (AML) regulations. The company also offers a forensics-focused tool that enables law enforcement to examine specific crimes, such as theft or fraud, that occur on the blockchain.
Such technologies have helped increase transparency in blockchain-powered financial transactions, such as the Justice Department's attempt to seize $3.6 billion in bitcoin stolen from cryptocurrency exchange Bitfinex in 2016, and countless other investigations.
According to Umar Farooq, CEO of Onyx, JPMorgan Chase's wholesale payments blockchain platform, "Leading infrastructure businesses like TRM will help lead the future of secure blockchain and cryptocurrency use cases."