Traditional Wall Street players might continue their foray into crypto despite the market becoming increasingly competitive. This comes as the S&P 500 and the Nasdaq Composite indices maintain a neutral correlation with Bitcoin.
A Bloomberg report finds that crypto custody is more complex and expensive than managing stocks and bonds. Despite regulatory hurdles, new partnerships in the sector are emerging to provide tokenized traditional finance to clients.
Crypto custody is more complex than traditional finance
Crypto custody has been complex since the beginning because of hackers and scamsters. While traditional custody is now considered simple, crypto custody can be expensive due to the layers of security protection required in the emerging market. A Bloomberg report finds that crypto custody is ten times more expensive than custody costs for equities.
According to data by CoinGecko, some of the top centralized exchanges include names like Bybit and OKX. These exchanges have a trust score of 10, a metric for the legitimacy of trading volume calculated by the platform. Bybit has a normalized 24-hour volume of nearly $2 billion. OKX stands at $1.19 billion while KuCoin and Kraken are close to $447 million and $299 million in volume, respectively.
In the custody market, Coinbase and BitGo are reportedly leading, with the sector growing by about 30% per year. Bloomberg reports that the market is valued at around $300 million, and bets are being made for a larger market.
Traditional players like BNY Mellon and State Street are preparing to enter the crypto custody market the report finds. However, due to unclear regulations and ongoing enforcement action by the securities and commodity regulators has become a hurdle.
For instance, the SEC’s SAB 121 rule makes it hard for regulated financial firms to offer crypto custody services so far. But some firms, like JPMorgan Chase, have capitalized on the sector’s potential.
Crypto can offer diversification
As the crypto custody market seems lucrative due to its growth potential, crypto can offer diversification to the tech sector. The Block’s 30-day Pearson correlation to Bitcoin for SP500 and Nasdaq has been neutral.
The Block’s 30-day Pearson correlation that shows crypto’s correlation with traditional market
The correlation between Bitcoin and the S&P 500 is neutral at 0.44 at the time of writing. While Bitcoin’s price does not strongly follow the index, it was negative in July.
Similar to the S&P 500, Bitcoin’s correlation with the Nasdaq has been neutral at 0.55. However, there was a slight rise in correlation in late August and early September, after a negative correlation in July.
