TradFi Firms Go Deeper Into Crypto Waters Despite Regulatory Uncertainty

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Despite the Securities and Exchange Commissions crackdown on major industry players, many traditional finance giants are undeterred in their pursuit of crypto-related opportunities.

While regulatory clarity is key for these companies, industry watchers said, the financial heavyweights are looking to use their regulatory muscle and large customer base to deepen crypto in a bid to help shape the world. future of finance.

Since the SEC sued Binance and Coinbase, competing exchanges have delisted tokens that the SEC considered securities, including Robinhood, eToro, and Bakkt.

The SEC kicked off 2023 with a lawsuit against Gemini and Genesis for allegedly mishandling customer funds. He telegraphed his lawsuit against Coinbase by slapping the company with a Wells notice in March.

Despite the SEC’s intensified enforcement actions in the space, some TradFi firms are staying the course, apparently viewing the space as a long-term game.

BlackRock, Deutsche Bank, and Citadel continue their crypto journeys

BlackRock, a group of funds with $9 trillion in assets under management, filed with the SEC last week creating a spot bitcoin ETF.

EDX Markets, a crypto exchange designed for institutional investors, launched on Tuesday with backing from Citadel Securities, Fidelity Digital Assets and Charles Schwab. Visibly SEC-compliant, it only offers four assets on its trading platform: bitcoin (BTC), ether (ETH), litecoin (LTC) and bitcoin cash (BCH).

Also this week, Deutsche Bank asked Germany’s financial regulator to provide crypto custody services, joining more crypto-native companies including Berlin-based Finoa and Bitpanda.

Spokespersons for Deutsche Bank and Citadel did not immediately respond to requests for comment on potential future deals. BlackRock declined to comment.

CK Zheng, former head of valuation risk at Credit Suisse and co-founder of crypto hedge fund ZX Squared Capital, said mainstream industry players are increasingly recognizing bitcoin’s enduring presence. He went on to say that the asset has already entered a new bull market cycle.

Bitcoin price is up nearly 16% from seven days ago, leading to a brief breakout on Wednesday at $30,000. The asset peaked at nearly $70,000 in November 2021.

TradFi confident despite regulatory challenges

But traditional finance players such as BlackRock, Deutsche Bank and backers of EDX Markets aren’t venturing into crypto on a whim, according to Jeff Feng, co-founder of Sei Labs.

Feng noted that these companies have spent time understanding the long-term benefits of blockchain and digital assets, such as faster and cheaper cross-border transactions, financial inclusiveness and greater transparency.

Read more: Crypto is not dead: Fortune 500 companies are bullish on the space

BlackRock CEO Larry Fink said last year he believed securities tokenization was the next generation for markets, adding in a March letter that such offerings could increase efficiency, shorten chains value and improve costs and access for investors.

Roger Bayston, head of digital assets at Franklin Templeton, said blockchain technology is set to transform capital markets. The company has a mutual fund that uses Stellar and Polygon blockchains and is exploring other ways to use this technology.

Others, such as Fidelity and State Street, have business units dedicated to the crypto space, with the former launching crypto-related ETFs and building metaverse experiences.

Their moves in this space mean a proactive approach to innovation, aimed at shaping the future of finance while leveraging their resources and institutional strength to comply with regulatory standards, Feng told Blockworks.

He added that the financial giants have decades of experience in heavily regulated environments and are likely confident in their ability to manage potential regulatory risks.

But as major financial institutions seek to push deeper into the crypto segment to fill the voids created by the latest bust, he added, regulatory uncertainty in the United States remains a hurdle.

A clear definition of which crypto assets are securities, commodities, or if they constitute something else will be essential. As soon as a regulatory framework is established, TradFi companies will fully bring their financial products and services to crypto, Zheng said.

Such intentions have given traditional companies the ability to use their large institutional customer base to seize opportunities from crypto-native businesses, according to industry watchers.

They might also seek to partner with or buy promising crypto companies to accelerate crypto-related deals. These can range from trading platforms to digital asset management and custody solutions.

Many of these companies have seen that Robinhood was able to disrupt the brokerage industry with commission-free trading this decade and want to be able to benefit from the global adoption of cryptocurrencies, Feng said.

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