Traditional finance players are ramping up their efforts in the crypto sector, and this gives us a sense of déjà-vu from 2019.
Crypto’s raison d’être is to offer disintermediated, borderless, and independent value vehicle, and it has been developing as such since Bitcoin launch in 2009.
However, as it gained popularity and use cases, some of crypto’s natural antagonists from traditional finance started to understand they should better jump on this train until it was too late.
Unsurprisingly, crypto awareness was dawning particularly intensely during the recovery phase of the Bitcoin price cycle.
2019 saw an array of TradFi (traditional finance) giants start dabbling in crypto in one way or another: Fidelity, JP Morgan Chase, Bakkt (subsidiary of ICE, or Intercontinental Exchange), Nasdaq, Goldman Sachs, Citigroup, UBS, Japanese Nomura Holdings and Mizuho, VISA, Mastercard…and many others. Even the French Société Générale showed its curiosity by issuing €100 million of Ethereum-based bonds.
The move continued a bit less enthusiastically through the bull run of 2020 (Standard Chartered, MassMutual, PayPal) and 2021 (Morgan Stanley, BNY Mellon), before winding off when the bear market hit and those who did not bet on crypto could say “I told you so”.
The petty party did not last long, though.
Recently, we have been seeing a surge of TradFi firms entering the crypto space. Institutions that preferred to stand aside and watch during the last cycle are now actively paving their way.
Of course, BlackRock is the biggest of them all, but it is not the only one. Some of the world’s biggest TradFi actors were spotted:
📌 BlackRock’s ($9.6 trillion) Bitcoin ETF filing was followed by other asset managers, such as TradFi WisdomTree, ProShares and Invesco;
📌 Deutsche Bank ($1.3 trillion) applied for digital asset custody license in Germany;
📌 CACEIS ($6 trillion), investment arm of the French bank Crédit Agricole (rather cryptophobic) and the Spanish Santander registered as a crypto service provider (PSAN) in France;
📌 Fidelity, Schwab, and Citadel launched an institutional crypto exchange called EDX. It caters only to institutional traders, offering them an API instead of a user interface. EDX will list four cryptocurrencies: Bitcoin, Bitcoin Cash, Litecoin, and Ethereum – in other words, those that have been (so far) spared from the SEC’s scrutiny.
The last news is probably the most indicative of the institutionalization of crypto, illustrating the depth of the real interest.
Such activity inevitably causes an array of conspiracy theories about powerful parties willing to imprison crypto within banks, but we all know that a truly decentralized cryptocurrency can stay independent as long as there are people willing to use it.
Even in countries where it is explicitly banned 😉
Ironically, even the IMF was forced to admit it in its recent report on Latin America:
“While El Salvador has made Bitcoin legal tender—declared by law to be a valid payment instrument to settle transactions and financial obligations—other countries like Argentina and the Dominican Republic have prohibited the use of crypto assets due to concerns about their impact on financial stability, currency and asset substitution, tax evasion, corruption, and money laundering.”
Of course, Argentina very reluctantly banned crypto because the IMF had blackmailed it into this by threatening to not restructure its $45 billion debt… but their tentative to change the wording speaks for itself. IMF continued:
“While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run.”
We prefer to look at the growing institutionalization of crypto as a sign of its maturity and the rising interest from clients.
Few finance specialists still dare to say that crypto is useless (not counting the embarrassing comments of the French Crédit Mutuel’s CEO or the repetitive ramblings of Warren Buffet), and most are now quietly preparing to diversify their portfolios or services offers.
Most central bankers, however, still stick to the initial script.
In its report released last week, BIS (the Bank of central banks) was speaking about the “collapse of crypto”, and ECB’s board member was giving a speech about crypto that “has failed to deliver on its promises”.
We would be worried if they did otherwise 😅
On the other side of the pond, however, Fed’s Jerome Powell noted that cryptos like Bitcoin have a “staying power”, and this is intriguing.
The rising interest in crypto from the world’s biggest financial firms reflects the gradual change of the crypto sentiment. The flaws of the fiat monetary system, which several years ago only a handful of people understood, are now apparent and obvious to millions, and Bitcoin is the only real alternative.
However, most people are still not ready to let go of the usual custodial system and prefer to entrust their crypto investments to institutions. Those, in turn, are obliged to stick to their own rigid system of custodians, creating demand for more crypto-focused TradFi services.
This is not a bitcoiner’s dream come true, but the situation bodes well for the current stage of the Bitcoin cycle – the recovery – and is a good omen for the next bull run.
The best is yet to come 🤠