JPMorgan has submitted an application for a new structured note linked to the BlackRock IBIT Bitcoin ETF. This note promises that if Bitcoin reaches a predetermined target, investors will receive a fixed return in double digits; however, if the ETF falls more than 30%, investors may lose their entire principal.
According to recently submitted regulatory documents, the design of this bond scheme is based on Bitcoin's halving cycle that occurs every four years. The scheme promises that if IBIT reaches its set price target by the end of 2026, investors will receive a fixed return of 16%; if IBIT reaches the target by 2028, investors will receive a return of over 50%.
However, this proposal has a significant additional condition: if the ETF drops more than 30% at any time before the expiration date, investors may lose all their principal.
In fact, the model is similar to derivative trading, as profits do not come from holding Bitcoin or ETFs, but from a contract whose returns depend on the ETF's performance. Clients do not hold IBIT or BTC; ideally, their gains and losses will be based on Bitcoin's price movements. JPMorgan drafted the following contract regarding this:
If IBIT reaches X in 2026 → you will receive 16%
If you reach the X target before 2028 → you will receive over 50% returns
If it drops 30% → you will lose all your principal
JPMorgan explicitly stated that these notes "do not guarantee repayment of principal," and losses will be proportional to the ETF's decline once it falls below the 30% resistance level.
This trade has a higher potential for upside and risks total loss, making the note fall into the high return/high volatility category, which institutional exchanges typically reserve for mature clients.
Additionally, it employs barrier and automatic redemption trigger mechanisms, which are the same mechanisms applied in equity-linked derivatives.
The unique mechanism of the product differs from that offered by spot ETFs, which includes:
2026 Automatic Redemption = Derivative Functionality
30% Downside Resistance = Derivative Style Risk Protection
Yield Increase (1.5x) = Derivative Leverage
This note offers 1.5x returns, a common derivative advantage in traditional banking products. If IBIT falls below the 30% threshold, the loss is 100%, which is equivalent to holding a call option that will expire if the conditions are not met.
Halving cycles and product adaptability are crucial for JPMorgan
Meanwhile, the choice of this timing is well thought out, as history shows that Bitcoin often enters a deep bear market about two years after each halving event.
The last halving occurred in April 2024, and the next contraction is expected in 2026, followed by a sharp rebound in 2028 (the next halving year).
This pattern closely aligns with the design of banknotes:
2026: If IBIT reaches JPMorgan's target early, options will be automatically issued, paying a fixed 16% yield.
2026-2028: If IBIT remains below target, the note will still be valid, providing 1.5x leveraged returns without an upper limit if BTC rises in 2028.
By 2028: Investors can only recover principal if IBIT avoids a 30% decline.
This release indicates that the era of spot ETFs is giving way to structured products aimed at achieving asymmetric returns, leverage, and risk exposure.
Derivatives and their potential
These instruments are similar to derivatives used by traditional banks for decades in equities, commodities, and foreign exchange, now venturing into the digital asset space.
For investors, its appeal lies in obtaining higher potential returns without directly holding the volatile Bitcoin.
However, the risks are equally significant. Bitcoin has historically experienced price declines of 70%-85%, and dropping below 30% is not uncommon even in moderate bear markets.
JPMorgan acknowledged this in the document and warned that if the related ETF breaks this threshold, investors "could lose everything".
The note approval process will determine how quickly the note reaches the institutional trading department, but what message does its design convey:
More products developed by Wall Street,
Many yield-seeking investment structures involve Bitcoin ETFs, and
More traditional capital is entering the cryptocurrency market through derivatives rather than spot tools.
As the market approaches the mid-cycle phase of 2026, demand for yield protection and leveraged products may increase, making JPMorgan's move an early outlook for the next wave of institutional Bitcoin investment.
