Some of the names in finance are making new bets on cryptocurrencies. This gives a new industry under pressure from US regulators to grow more competition and energy.
BlackRock (BLK), the biggest money manager in the world, wants to start a new exchange-traded fund based on Bitcoin.
Fidelity Investments and Charles Schwab (SCHW), two other big money managers, are backing a new bitcoin exchange that Citadel Securities is making.
Deutsche Bank, one of the largest banks in the world, wants to run a crypto-holding business that would hold its clients’ digital assets.
The worth of cryptocurrencies, especially bitcoin (BTC-USD), is going up because of these recommendations from Wall Street institutions with a track record.
On Friday, the price of Bitcoin, the biggest cryptocurrency in the world, went up to $31,389. Since April, this was the first time it had gone above $30,000. Bitcoin was up 81% for the year as of Friday.
Other cryptocurrencies, like ether (ETH-USD) and the AVAX coin from Avalanche (AVAX-USD), also went up this week.
On Friday, the overall value of all crypto assets on the market reached $1.2 trillion, 14% more than a week ago.
This new interest from big banks comes at a bad time for an industry struggling to get back on its feet since the collapse of the cryptocurrency exchange FTX in 2022 and the following regulatory crackdown.
The biggest crypto exchanges in the US and the world, Coinbase (COIN) and Binance are being sued by the Securities and Exchange Commission this month. The SEC says that Coinbase and Binance let digital currencies trade on their sites that should have been registered with the agency.
This made people worry that it might get harder to trade certain digital goods. Since the beginning of 2023, 15 different crypto players have been charged by the SEC with breaking securities laws.
BlackRock, a financial firm overseeing assets exceeding $9 trillion, submitted documentation to the Securities and Exchange Commission (SEC) on June 15th, with the intention of establishing a Bitcoin exchange-traded fund (ETF). This was a surprising change in how people felt about the business.
Instead of just following Bitcoin futures, this type of fund would be tied to the value of the original digital currency. Coinbase would be in charge of keeping the bitcoins safe.
According to Joseph Chalom, the head of strategic partnerships at BlackRock, during the Coinbase State of Crypto Summit in collaboration with the FT, he believes that it is important for institutional custodians to get involved and actively engage in digital token economies.
When the news came out, the price of Bitcoin shot up. Soon after, other big players like Invesco and Wisdom Tree Investments resubmitted spot bitcoin ETF applications they had already sent to regulators.
A big problem still stands in the way of the attempts. Since 2013, the SEC has turned down 27 requests to make spot bitcoin ETFs, saying that the products could be used to manipulate the market.
Wisdom Tree was turned down in 2021. Grayscale Investments is suing the SEC because it couldn’t turn its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin offering.
Conflicts of interest
This week, a new cryptocurrency exchange backed by Citadel, Fidelity, and Charles Schwab said it had started making trades. This was another big step forward for the business.
Late in 2022, the company, EDX Markets, started discussing its plans and advertising itself to “remove major conflicts of interest that affect existing cryptocurrency exchanges.”
It made the same point again last week, citing a “non-custodial model designed to reduce conflicts of interest.” It won’t take care of customers’ digital assets. Instead, it will run a community where buyers and sellers deal directly with each other.
When FTX went out of business last year, it was found that a trading company with which it was connected had used customer funds to make its trades. The SEC has also said that Binance used customer money for its purposes, which Binance has denied.
In a meeting with reporters earlier this month, SEC Chair Gary Gensler said that a typical business plan for crypto exchanges is “built on conflicts,” “limited disclosure,” and “sometimes deception.”
In an interview, Jamil Nazarali, the CEO of EDX, said that “FTX just proved our business model.” He also said that EDC is “combining the best of the digital world, like trading 24 hours a day, seven days a week, and many of the innovations of blockchain, with the investor protections of traditional finance.”
EDX says it will only let people trade in Bitcoin, ether, litecoin, and Bitcoin cash. The SEC has not considered any of these assets to be stocks, which could help EDX avoid some of Coinbase and Binance’s problems.
Together, these platforms make it possible to trade 19 digital currencies that the SEC has deemed securities and must be registered with the agency. Data collected by Cryptorank.io shows that the agency has called 55 cryptocurrencies securities in different cases.
Coinbase is fighting the lawsuit and doesn’t agree with what the SEC says. On Thursday, when its CEO Brian Armstrong spoke at a crypto conference in New York, he didn’t sound worried.
Instead, he said that the Coinbase platform could become a “superapp” like WeChat in the next five to seven years. In Asia, WeChat is used for everything from messaging to banking to buying food.
He stated that despite the negative discussions and media coverage surrounding the industry, it continues to progress and advance.
Roger Balston, who is in charge of digital assets at Franklin Templeton, said that officials need to keep an eye on things.