Some of the biggest names in finance are making new bets on cryptocurrencies, adding competition and momentum to a fledgling industry that is coming under increasing pressure from US regulators.
The world’s largest fund manager, BlackRock (BLK), wants to launch a new exchange-traded fund that would use bitcoin as the underlying asset.
One of the world’s largest hedge funds, Citadel Securities, is backing a new cryptocurrency exchange with Fidelity Investments and Charles Schwab (SCHW), two other prominent fund managers.
And one of the world’s largest lenders, Deutsche Bank, wants to operate a crypto custody business that would hold digital assets for its clients.
These endorsements from proven institutions on Wall Street are helping to drive up the value of cryptocurrencies, especially bitcoin (BTC-USD).
The world’s largest cryptocurrency hit its highest price in a year on Friday at $31,389, after surging above $30,000 for the first time since April. Through Friday, bitcoin was up 81% year-to-date.
Other cryptocurrencies also rose this week, including ether (ETH-USD) and Avalanche’s AVAX token (AVAX-USD).
The total market capitalization of crypto assets reached $1.2 trillion on Friday, 14% higher than it was a week earlier.
Growing Peril
This new interest from traditional financial institutions comes at a time of growing peril for an industry that has struggled to regain its footing after the 2022 implosion of cryptocurrency exchange FTX and the regulatory crackdown that followed.
Earlier this month, the Securities and Exchange Commission filed lawsuits against the largest crypto exchanges in the US and globally, Coinbase (COIN) and Binance, alleging they both allow digital currencies to be traded. trade on their platforms which should have been registered with the agency.
This has fueled new concerns that it could become more difficult to trade certain digital assets. Since the start of 2023, the SEC has charged 15 different crypto players with violating securities laws.
A surprise shift in sentiment toward the industry began on June 15, when BlackRock, which controls more than $9 trillion in assets, filed paperwork with the SEC to create a bitcoin exchange-traded fund. in cash.
Such a fund would be tagged to the value of the original digital asset instead of just tracking bitcoin futures. Coinbase would be the custodian of bitcoin holdings.
“I think there’s an element of — we need institutional custodians to step in and play roles and participate in digital token economies,” BlackRock’s head of strategic partnerships, Joseph Chalom, said Thursday during Coinbase. State of Crypto Summit in partnership with the FT.
Bitcoin’s value skyrocketed on the announcement. Other institutional players such as Invesco and Wisdom Tree Investments soon followed by renewing applications for spot bitcoin ETFs that they had previously submitted to regulators.
The efforts still come up against a significant obstacle. The SEC has denied 27 previous applications to create spot bitcoin ETFs since 2013, arguing that the products are vulnerable to market manipulation.
Wisdom Tree, in fact, was denied in 2021. An asset manager, Grayscale Investments, is suing the SEC because he was not allowed to convert his Grayscale Bitcoin Trust (GBTC) into a bitcoin spot offer.
‘Conflicts of Interest’
Another catalyst for the industry came this week when a new cryptocurrency exchange backed by Citadel, Fidelity and Charles Schwab said it had started executing trades.
The firm, EDX Markets, began discussing its plans in late 2022 and touting itself as a deal that would “remove significant conflicts of interest that plague existing cryptocurrency exchanges.”
He made the same point again last week, citing a “non-custodial model designed to mitigate conflicts of interest.” It will not manage customer-owned digital assets, but rather run a marketplace where buyers and sellers deal directly with each other.
As part of FTX’s collapse last year, it was revealed that an affiliated trading firm was using client assets to conduct its own trades. The SEC also alleged that Binance misused customer funds, a charge Binance denies.
Earlier this month, SEC Chairman Gary Gensler said during a briefing with reporters that a standard business model for crypto exchanges is “built on contention,” “limited disclosure,” and “sometimes misleading”.
Jamil Nazarali, CEO of EDX, said in an interview that “FTX has just validated our business model.” What EDC does, he added, is “take the best of the digital world, 24/7, many blockchain innovations and combine them with investor protections in finance. traditional”.
EDX says it will only offer trading in four cryptocurrencies: bitcoin, ether, litecoin, and bitcoin cash. None of these assets have been deemed securities by the SEC, allowing EDX to potentially avoid some of the problems faced by Coinbase and Binance.
Together, these exchanges allow the trading of 19 digital currencies that the SEC has classified as securities, meaning they must be registered with the agency. In total, the agency named 55 cryptocurrencies as securities in various lawsuits, according to data compiled by Cryptorank.io.
Coinbase is fighting the lawsuit and denying the SEC’s claims. Its CEO, Brian Armstrong, didn’t seem worried at a crypto conference in New York on Thursday.
Instead, he said that in the next five to seven years, the Coinbase platform could turn into a “super app” like WeChat, which is used in Asia for everything from messaging to banking and more. by ordering food.
“Despite some of the negative rhetoric, the headlines, this industry is moving forward,” he said.
Roger Balston, head of digital assets for Franklin Templeton, said careful scrutiny from regulators was needed.
“Even though it’s been bumpy, regulatory clarity really enables the adoption of standards that will allow capital to flow,” he told Yahoo Finance.
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