Wall Street Is Coming For CryptoWhether Early Believers Like It Or Not

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At Money20/20 earlier this month, David Schwed, COO of Halborn, sent a message back to his team from the floor of the fintech conference in Amsterdam.

I am happy, he writes. I feel like there are adults here.

After attending crypto-centric conferences in Texas, Miami and Barcelona over the past few weeks, he said seeing booths owned by JP Morgan, Citibank and Goldman Sachs was a welcome change of scenery after the blows. fist and the nocturnal festivities.

Schwed joined Halborn, a blockchain security company, last July. In his previous role, he served as Global Head of Digital Asset Technology for BNY Mellon, one of Americas oldest lenders and the world’s largest custodian bank.

This is partly why he sees a huge, huge market for big banks to enter the crypto industry, he told Decrypt. He is not the only one.

Institutions in the traditional world of finance dipped their toes into crypto long before FTX bottomed out last November. But now, with the SEC circling the two largest centralized exchanges still standing, traditional finance (or TradFi, as it’s been dubbed in the industry) looks poised to gain traction and perhaps market share. . Some experts say that all financial roads in the United States, no matter how nascent, eventually lead to Wall Street.

Banks and financial institutions with capital are always years behind by design because they are risk averse, Schwed said. And then once there’s some kind of clarity, whether it’s from the SEC or the court systems, they’re just going to jump at that opportunity and create.

Even if Wall Street wants to participate, Schwed thinks crypto will always have its anti-establishment players, who skew libertarians. Their rallying cry: Screw the financial intermediaries. But he said that faction will likely shrink or pivot toward privacy coins as regulators increase pressure, leading to tougher regulations down the road.

The companies we see today, […] they’re going to look and feel very different going forward, he said. Those who are smart, those who earn capital, are going to build around what comes out of these SEC lawsuits.

Shark Tank star Kevin OLeary is among the veteran investors who believe a changing of the guard is afoot. As Americas financial watchdog attempts to bring crypto to heel, he told Decipher that three years from now, the top companies in the industry will be made up of an entirely different team.

We have to thank them for their service and entrepreneurship, but they have to go, he said of today’s best exchanges. They do not understand the concept of integration [with] global financial system in a way that allows institutions to participate in it.

Amid bitter vibrations on Crypto Twitter after the recent SEC regulatory blitz, a glimmer of hope for crypto adoption flickered when BlackRock announced its bid to establish the Americas’ first Bitcoin ETF. Shortly after, Wall Street titans Fidelity, Charles Schwab and Citadel Securities announced that their crypto exchange EDX Markets had begun trading operations.

A few days later, the Bitcoin price was flirting with $30,000, up about 20% since BlackRock filed its application.

If BlackRocks Bitcoin ETF is approved, it would be a game changer. To date, the SEC has blocked every request, time and time again, since the Winklevoss twins first filed a Bitcoin ETF in 2013.

It didn’t take long for CB Insights CEO Sui Chung’s phone to ring hot with customer calls after the ETF announcement, he told Decrypt. In particular, these were clients of large, traditional companies looking to assess BlackRocks’ chances of success.

This was a palpable shift in their attitude towards Bitcoin, he said, believing that if BlackRock was willing to experiment with creating new financial products, they should too, “because clearly that can be done.

BlackRock keeping Coinbase as the custodian of its Bitcoin ETF, even after the SEC accused the San Francisco-based company of operating an unregistered exchange in a lawsuit, is a tacit vote of confidence. The two announced their first major partnership last August, signing a deal that allows users of BlackRocks’ Aladdin institutional platform to access digital assets through the Coinbases brokerage service.

By targeting Coinbase, the SEC got some TradFi sympathy. Shortly after being sued, the Committee on Capital Markets Regulation, which describes itself as a nonpartisan research group, released a brief that criticized the agencies’ lawsuit and accused the SEC of making it unduly difficult for companies cryptography to register with the watchdog.

Leo Mizuhara, CEO of digital asset management platform Hashnote, said BlackRocks’ choice to go further will encourage more institutions to take crypto seriously as an emerging asset class.

“To a large extent, [BlackRock] legitimizes the whole space as an investable asset class,” Mizuhara told Decipher. “The fact that they did this right after the SEC sued Coinbase, I think, really illustrates how few people think the SEC has legs to stand on.”

However, the accompanying glow of greater involvement by large institutions is not a welcome step for some of the true crypto believers. FUD leaked on Crypto Twitter about a TradFi takeover after BlackRocks’ filing, calling the SEC’s regulatory double tapping part of a nefarious plot.

“These big companies are used to controlling financial markets, and crypto makes them feel under threat,” Miles Deutscher, a self-proclaimed DeFi addict, tweeted. The goal, he claimed, is to kill crypto companies through aggressive regulation, so that big TradFi can step in and control American commerce.

The hidden agenda behind the recent SEC crypto crackdown:

Big TradFi funds sat in 2017 and 2021 and watched the crypto post returns of over 1000%, while they were sidelined watching their stocks rise 10% annually.

This made them extremely envious of new crypto startups

Miles Deutscher (@milesdeutscher) June 16, 2023

But among those who work with these institutions, Wall Street’s involvement should be welcomed as a necessary evil.

“I’ve always been of the opinion that crypto and bitcoin aren’t going anywhere if they’re only there for extremists and anarchists,” Hashnote’s Mizuhara said. “For it to make its mark in the world, it really needs to go mainstream. We’re on stage two out of 10 at this point, but it’s happening.”

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