JPMorgan Chase (JPM) announced on Monday that it would make a “strategic investment” in TRM Labs, a blockchain analysis firm, becoming the latest in a growing number of Wall Street firms expanding their footprint in the cryptocurrency sector.
The analytics software used by TRM and others has become a go-to for regulators and law enforcement agencies looking to keep tabs on the flow of illicit crypto transactions. Last week, banking giant BNY Mellon, announced it would begin integrating similar analytics tools from Chainalysis.
The JPMorgan investment “clearly highlights the significance of the growing crypto economy and the importance of building trust and safety in this ecosystem to sustain its growth,” Esteban Castano, TRM’s co-founder and CEO, said in a statement.
While firms like Chainalysis, TRM Labs and Elliptic work with a growing number of big names in the finance sector, most of their customers aren’t disclosed.
The Drugs and Crime Office of the United Nations (UNDOC) as well as the Internal Revenue Service, major British fintech, Revolut, and the online trading brokerage, Robinhood, all use blockchain analysis to monitor crypto transactions.
At the end of last year, TRM announced a $60 million raise led by Tiger Global; it also included the venture arm of American Express (AXP), Visa (V), and crypto venture capital firm, Castle Island Ventures.
TRM’s has carved out a niche by tracing crypto flows across different blockchains, especially the Solana (SOL-USD) blockchain. Its client roster includes crypto custody bank Anchorage Digital, Circle, FTX.US, Moonpay and Binance, among others.
JPMorgan CEO Jamie Dimon has been an outspoken critic of the sector, but has acknowledged the realities of a booming sector that clients want to get involved in. Earlier this month, the bank made a splashy entrance into the metaverse by opening a virtual lounge on the cryptocurrency-powered virtual reality platform, Decentraland.
‘Beyond illicit transactions’
Data suggests that illicit flows into digital tokens have fallen in the last year, even as the total market capitalization for crypto has more than doubled, to $1.7 trillion, in the same period. Nevertheless, the emerging debate over crypto regulation, as well as several high-profile fraud cases, have put the sector under the microscope.
While compliance and safety remain the hallmark use for blockchain analysis, the potential for transaction monitoring tools provided by TRM and similar firms could be leveraged “beyond the problem of illicit transactions” according to Alkesh Shah, a global crypto and digital asset strategists with Bank of America.
He recently told Yahoo Finance that they “help provide a view of what’s happening in these blockchain ecosystems.” Under that premise, the software can give institutional investors a better view at which blockchains “are winning and which ones are losing,” he added.
TRM’s products help customers mitigate risk and meet anti-money laundering (AML) regulatory requirements. The firm also offers a forensics focused product that allows law enforcement to investigate specific crimes like theft or fraud which originate on a blockchain.
Such tools have helped highlight the transparency of blockchain-powered financial transactions, such as in the Department of Justice’s efforts to seize $3.6 billion in Bitcoin stolen from the crypto exchange Bitfinex in 2016, as well as numerous other investigations.
Umar Farooq, CEO of Onyx, JP Morgan’s blockchain platform for wholesale payments, said that “leading infrastructure companies like TRM will help usher in the future of secure blockchain and crypto use cases.”
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.
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