Wall Street Reluctantly Embraces Crypto

Wall Street has a message for its many customers who were eager to invest in cryptocurrencies: OK, OK, we heard you.

The largest banks, securities firms and custodians in the United States, many of whom have already skeptically hailed the emergence of digital assets, are now showing their forays into the market.

“It’s a time when the traditional industry has woken up and accepted more broadly that this is happening,” said Walt Lukken, president and CEO of the Futures Industry Association, a large trading group for derivatives markets.

Its recent conversion, industry executives said, has less to do with any epiphany about the usefulness of cryptography than with a simple reality: they don’t want to lose business to their rivals.

Hedge funds and other professional investors have already traded in cryptocurrencies, but many money managers, from mutual fund giants to pension funds, are increasingly eager to find a way to enter the cryptocurrency markets, executives said. Inflation and rising interest rates have lowered expectations of a return on stocks and bonds, making cryptocurrencies more attractive.

Now money managers, the main customers of banks, want to pay them to trade and lend, structure and protect cryptography. They are uncomfortable with relying on cryptocurrency companies for transactions that involve money from others, and they want major financial companies to adjust to their traditional roles as intermediaries. Wall Street participation, investors say, could bring stability to emerging markets.

“It’s gotten to the point where everyone is at some point in the journey,” said Mike Demissie, head of digital assets and advanced solutions at Bank of New York Mellon Corp..

“If they are not actively investing [in crypto]then they are exploring it. ”

In response, most banks and custodians are working on plans to move forward with the handling of cryptography, at different rates.

Companies such as Fidelity Investments and Cowen Inc.

they began to store and trade cryptocurrencies, either on their own or through companies with digital asset startups. Last week, Fidelity announced plans to allow individual savers to add bitcoins to their 401 (k) s. The U.S. Department of Labor has argued that the offer would jeopardize the retirement security of Americans.

BNY Mellon and rivals like State Street Corp..

they are building capabilities to store and trade bitcoins and other digital assets while awaiting U.S. and state regulatory approvals that they say will allow them to come into operation with those services for institutional clients. They expect this to happen soon this year.

WSJ’s Dion Rabouin explains why Wall Street is now so committed to cryptography and what it means for the new asset class and its future. Composite photo: Elizabeth Smelov

Investment banks, including Goldman Sachs Group Inc.

, said they also need more regulatory input before they can handle cryptocurrencies directly. Meanwhile, Goldman has begun trading in both over-the-counter and futures bitcoin options listed in the CME Group. Inc.,

operator of the largest stock exchange in the world. The bank also recently made a loan that was secured by the borrower’s bitcoin holdings.

Regulatory uncertainty is not the only reason many major financial companies have cautiously entered the cryptographic world. Within these companies, cryptocurrencies can still outperform cryptocurrencies. In recent years, bitcoin has been ridiculed as “worthless” by Jamie Dimon, CEO of the largest US bank. – well-known investor.

Some companies do not feel compelled to direct the load to a new market, opting instead to wait until there are sufficient rates to justify the risks.


How will the acceptance of bitcoins and other digital assets by Wall Street companies change the world of cryptocurrency, and vice versa? Join the conversation below.

“Everyone understands that something revolutionary is happening that will affect parts of their business model,” said Damien Vanderwilt, co-chair of Galaxy Digital Holdings. Ltd.

, a company that provides business services and advice to digital asset companies and runs its own cryptocurrency investment business. “When they stop and think, ‘What do we do about it?’

Jeffrey Solomon, Cowen’s chairman and CEO, said institutional investors are taking the same path they did more than 50 years ago, when stocks were largely in personal accounts and the market was struggling to cope with rising trading volume.

Advances in the power of computers have helped change all of this, leading to huge growth in professional-managed stock investment products, he said. Investors with big money – and the banks and brokers they serve – are at a similar crossroads, he said.

At the recent annual Futures Industry Association conference, crypto was everywhere. Cryptographic companies sponsored the event and their executives sat on panels. His presence did not go unnoticed by the old guard of the industry. As many attendees gathered in the lobby of Boca Raton Resort & Club in mid-March, CME President Terry Duffy approached FTX cryptocurrency exchange founder Sam Bankman-Fried to speak quietly. “All eyes were on them,” one assistant said.

Write to Justin Baer at justin.baer@wsj.com

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