Cue the optimism.
Following Donald Trump’s election victory on November 5, Bitcoin has swung to numerous all-time highs, memecoins are pumping, and even scorned NFTs are surging again.
As crypto investors revel in the “euphoria zone,” experts are expecting more traditional investment firms to cater to the growing marketplace with new products and services.
BlackRock, which made a splash in January by introducing Bitcoin exchange-traded funds, wasted no time at all.
This week, the Wall Street giant offered options on those ETFs and they got off to a roaring start.
And the action across the market is just beginning.
This was the takeaway at an event last week co-hosted by DL News and Eterna Partners.
Speaking on the panel was Bullish global strategy head Chris Tyrer; Thomas Restout, CEO of crypto market maker B2C2; and Arnab Sen, CEO of institutional crypto derivatives trading platform GFO-X.
These market mavens shared their views on what’s next for big banks and asset managers.
More crypto IPOs
Crypto exchanges and other businesses that primarily serve retail customers are hoping for tailored regulation from a more crypto-friendly Congress.
That will give these companies their own paths to registering with regulators, and less onerous compliance once they’re registered.
But companies that service institutions are less concerned about regulation — they’re already registered with regulators.
They have to be, or the banks won’t touch them.
Tyrer said he was more interested in whether a crypto-friendly Securities and Exchange Commission will pave the way for more digital assets firms to go public.
SEC Chair Gary Gensler’s tough stance on crypto amounted to a de facto ban on crypto firms trying to do IPOs, Tyrer said.
This meant that Coinbase, the crypto exchange, is one of the few major firms in the US to be listed.
“Coinbase is a great company, but they have had an unfair advantage,” said Tyrer.
Until now.
Tyrer’s company, the Peter Thiel-backed Bullish, is among several — including Circle, eToro, and Galaxy — that haven’t been able to secure SEC approvals to go public.
Tyrer agreed that clearer regulation is desirable, “but having access to public markets will help the industry to a far greater degree than we’ve seen,” he said, adding that it will give professional investors especially more choice.
Slower enforcement
For Restout, regulation was also of secondary importance. For a relatively small firm like his, what’s key is the SEC dialling back its aggressive enforcement agenda.
Under Gensler, the agency has sought to force crypto businesses large and small to hew to the 95-year-old securities laws that govern stocks and bonds.
While a juggernaut like BlackRock can clear regulatory hurdles, smaller firms must cope with the risk and expense of compliance.
Even businesses like B2C2 — the market maker records $35 billion in annual revenue — must be wary.
“So for us as participants in this ecosystem, this is a real, major shift. A lot of the largest institutions, those who wanted to enter the space, were able to solve every solution,” Restout said.
Market plumbing
Sen said that while large institutions are showing an interest in digital assets and crypto, the trading infrastructure isn’t quite there yet.
Most of what’s missing is in the plumbing of the markets — the back office functions that process transactions and mitigate risk behind the scenes in the capital markets.
Big banks, which provide the services investment firms need to trade any asset class, aren’t going to go all-in on crypto until those components are in place.
But banks are slow-moving, and their technology is outdated, Sen said.
“Banks are not going to change all their legacy technology systems for one asset class, and for one asset class that is tiny,” he said.
Banks must show regulators they’re monitoring trading for fraud or market abuse, and they must report trades to regulators, plus know who they’re trading with.
“It’s not sexy, but it is a huge friction for this asset class and for institutional participation,” Sen said.
“Whatever size and scale institutions want to trade in, they want to intermediate via the banks,” he said.
Size, tech
“If you can’t pull crypto within your existing collateral agreements and trade agreements ... you’re going to get single, smaller entities trading at a smaller size.
For the banks, it’s about ”technology, it’s systems, it’s market structure, it’s ‘Who am I facing from a credit perspective?’” Sen said.
Still, crypto is more than mature enough for the big players, Tyrer said.
In the $3.3 trillion asset class, Bitcoin just overtook silver in total market value, he said.
“Bitcoin’s been ticking along for nearly 15 years now, it’s never been hacked. And we’re still asking if this technology is ready,” Tyrer said.
“At what point does that mind shift change? At this point, it’s just people not looking at the facts anymore.”
Reach out to the author at joanna@dlnews.com.
