Some of the biggest names in finance are new to cryptocurrencies, increasing competition and dynamism in a burgeoning industry that is increasingly under pressure from US regulators.
The world's largest asset manager BlackRock (BLK) wants to launch a new exchange-traded fund that would use Bitcoin as an underlying asset.
One of the world's largest hedge funds, Citadel Securities, is backing a new cryptocurrency exchange along with two other major wealth managers, Fidelity Investments and Charles Schwab (SCHW).
And one of the world's largest lenders, Deutsche Bank, wants to operate a crypto custody business that will hold digital assets for its customers.
These recommendations, from institutions with a track record of success on Wall Street, are helping to increase the value of cryptocurrencies, especially Bitcoin (BTC-USD).
The world's largest cryptocurrency surged to $31,389 on Friday, a year-high after surging above $30,000 for the first time since April. As of Friday, Bitcoin was up 81% year to date.
Other cryptocurrencies also surged this week, including Ether (ETH-USD) and Avalanche's AVAX token (AVAX-USD).
The total crypto asset market cap hit $1.2 trillion on Friday, up 14% from a week ago.
This renewed interest from mainstream financial institutions comes at a time of increasing peril for an industry that has been struggling to regain a foothold following the 2022 implosion of cryptocurrency exchange FTX and the regulatory crackdown that followed.
The Securities and Exchange Commission earlier this month filed lawsuits against the largest crypto exchanges in the United States and the world, Coinbase (COIN) and Binance, alleging that both have allowed trading of digital currencies on their platforms, which are registered with the agency should have been registered.
This fueled new concerns that certain digital assets could become more difficult to trade. Since early 2023, the SEC has indicted 15 different crypto actors for violating securities laws.
On June 15, industry sentiment took a surprising turn when BlackRock, which controls more than $9 trillion in assets, filed with the SEC to set up a spot Bitcoin exchange-traded fund.
Such a fund would be tied to the value of the original digital asset, rather than just tracking bitcoin futures. Coinbase would be the custodian for Bitcoin holdings.
“I think there's an element of — we need institutional custodians to step in, play roles, and participate in digital token economies,” BlackRock's head of strategic partnerships, Joseph Chalom, said Thursday at the Coinbase State of Crypto Summit in Cooperation with the FT.
Bitcoin's value skyrocketed after the announcement. Other institutional players such as Invesco and Wisdom Tree Investments quickly followed suit, renewing spot bitcoin ETF applications they had previously submitted to regulators.
The effort still faces a significant hurdle. The SEC has rejected 27 previous applications to create spot bitcoin ETFs since 2013, arguing that the products are vulnerable to market manipulation.
In fact, Wisdom Tree was dismissed in 2021. An asset manager, Grayscale Investments, is suing the SEC for not being allowed to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin offer.
‘Conflicts of Interest'
Another catalyst for the industry came this week when a new cryptocurrency exchange backed by Citadel, Fidelity and Charles Schwab announced it had started executing trades.
The company, EDX Markets, began discussing its plans in late 2022, presenting itself as a company that would “resolve significant conflicts of interest affecting existing cryptocurrency exchanges.”
The same thing was reiterated last week, referring to a “no-detention model to mitigate conflicts of interest.” It does not manage digital assets owned by customers, but operates a marketplace where buyers and sellers deal directly with each other.
As part of the collapse of FTX last year, it was revealed that an affiliated trading company was using client funds for its own trades. The SEC has also claimed that Binance misused customer funds, an allegation Binance denies.
Earlier this month, SEC Chairman Gary Gensler said in a briefing with reporters that a standard business model for crypto exchanges is “based on conflict,” “limited disclosure,” and “sometimes deception.”
EDX CEO Jamil Nazarali said in an interview, “FTX just validated our business model.” What EDC does, he added, is “the best of the digital world, 24-by-seven trading, many to leverage the innovations of blockchain and combine it with investor protection in traditional finance.”
EDX says it will offer trading in just four cryptocurrencies – bitcoin, ether, litecoin and bitcoin cash. None of these assets have been classified as securities by the SEC, so EDX may be able to circumvent some of the issues Coinbase and Binance are facing.
Together, these exchanges enable trading of 19 digital currencies that have been designated as securities by the SEC, meaning they must be registered with the agency. According to data compiled by Cryptorank.io, the agency has classified a total of 55 cryptocurrencies as securities in various lawsuits.
Coinbase is fighting the lawsuit and denying the SEC's claims. On Thursday, its CEO, Brian Armstrong, didn't sound concerned while speaking at a crypto conference in New York.
Instead, he said that over the next five to seven years, the Coinbase platform could evolve into a “superapp” like WeChat, which is used in Asia for everything from messaging to banking to ordering food.
“Despite some negative rhetoric and headlines, this industry is moving forward,” he said.
Roger Balston, head of digital assets at Franklin Templeton, said regulatory scrutiny is necessary.
“As bumpy as it has been, the regulatory clarity is actually paving the way for the adoption of standards that enable capital flow,” he told Yahoo Finance.
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