Wall Street has a message for its many clients that have been eager to invest in cryptocurrencies: OK, OK, we hear you.
The largest U.S. banks, securities firms and custodians, many of whom once greeted the emergence of digital assets with skepticism, are now showcasing their forays into the market.
“It’s a moment in time when the traditional industry has woken up and more broadly accepted this is happening,” said
president and chief executive of the Futures Industry Association, a large trade group for the derivatives markets.
Their recent conversion, industry executives said, has less to do with any epiphany about crypto’s utility than it does a simple reality: They don’t want to lose the business to rivals.
Hedge funds and other professional investors were already trading cryptocurrencies, but many money managers—from mutual-fund giants to pension funds—are increasingly eager to find a way into the crypto markets, executives said. Inflation and rising interest rates have damped expectations for returns on stocks and bonds, making cryptocurrencies more attractive.
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Now the money managers, banks’ biggest clients, want to pay them to trade and lend, structure and safeguard crypto. They are uneasy with relying on crypto startups on transactions that involve other people’s money and want mainstream financial firms to settle into their traditional roles as intermediaries. Wall Street’s participation, investors say, might bring stability to the nascent markets.
“It’s gotten to the point where everyone is at some point in the journey,” said
are building capabilities to store and trade bitcoin and other digital assets while they await U.S. and state regulatory approvals that they say will allow them to go live with those services for institutional clients. They expect that to happen as soon as this year.
, have said they also need more regulatory input before they can handle cryptocurrencies directly. In the meantime, Goldman has started executing trades on both over-the-counter bitcoin options as well as futures listed with
operator of the world’s biggest derivatives exchange. The bank also recently made a loan that was secured by the borrower’s bitcoin holdings.
Regulatory uncertainty is not the only reason many mainstream financial firms have waded gingerly into the crypto world. Inside these firms, the crypto skeptics can still outnumber the crypto curious. In recent years, bitcoin has been derided as both “worthless” by
CEO of the largest U.S. bank, JPMorgan Chase & Co., and “rat-poison squared” by Berkshire Hathaway Inc. CEO
perhaps Wall Street’s best-known investor.
Some firms don’t feel compelled to lead the charge into a new market, opting instead to wait for the moment when there are enough fees to justify the risks.
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“They all understand something revolutionary is taking place that will impact parts of their business model,” said
, a firm that provides trading and advisory services to digital-asset companies and runs its own crypto investing business. “When they stop and think, `What do we do about it,’ the answer for most banks is that the opportunity today is not big enough to take the reputational risks of being early.”
Cowen’s chairman and chief executive, said institutional investors are taking the same path they did more than 50 years ago, when stocks were largely held in personal accounts and the market struggled to handle surges in trading volume.
Advancements in computer power helped change all of that, leading to huge growth in stock-investing products managed by professionals, he said. Big-money investors—and the banks and brokers who serve them—find themselves at a similar crossroads, he said.
At the Futures Industry Association’s recent annual conference, crypto was everywhere. Crypto firms sponsored the event, and their executives sat on panels. Their presence didn’t go unacknowledged by the industry’s old guard. While many attendees congregated in the lobby of the Boca Raton Resort & Club in mid-March, CME Chairman