Some of the biggest names in finance are making new bets on cryptocurrency, adding competition and momentum to a nascent industry facing increasing pressure from US regulators.
The world's largest asset manager, BlackRock (BLK), wants to launch a new exchange-traded fund that will use bitcoin as its underlying asset.
Two other major money managers, Fidelity Investments and Charles Schwab (SCHW), back the new cryptocurrency exchange along with Citadel Securities.
And one of the world's largest lenders, Deutsche Bank, wants to launch a crypto-custody business that will store digital assets for its clients.
These endorsements from reputable companies on Wall Street help increase the value of cryptocurrencies, especially Bitcoin (BTC-USD).
The world's largest cryptocurrency hit a one-year high of $31,389 on Friday after topping $30,000 for the first time since April. By Friday, Bitcoin is up 81% year to date.
Other cryptocurrencies were also up this week, including Ethereum (ETH-USD) and Avalanche AVAX Token (AVAX-USD).
The total market capitalization of crypto assets hit $1.2 trillion on Friday, up 14% from a week ago.
increased risk
The renewed interest from major financial institutions comes amid heightened risk to an industry struggling to recover from the 2022 collapse of cryptocurrency exchange FTX and the subsequent crackdown by regulators.
Earlier this month, the Securities and Exchange Commission filed lawsuits against the largest cryptocurrency exchanges in the US and the world, Coinbase (COIN) and Binance, alleging that both allow trading of digital currencies on platforms that must be registered with the organization.
This has raised new concerns that some digital assets may become more difficult to trade. Since early 2023, the SEC has charged 15 different crypto activists with securities law violations.
The surprising shift in industry sentiment began on June 15 when BlackRock, which oversees $9 trillion in assets, filed with the SEC to launch an exchange-traded fund.
This fund must be indexed to the value of the underlying digital asset and not track bitcoin futures. Coinbase will be the custodian of Bitcoin holdings.
“I think there is an element: We need institutional custodians to participate, play a role and participate in the digital token economy,” Joseph Chalum, BlackRock's head of strategic partnerships, said Thursday at the Coinbase State of Crypto Summit.
Bitcoin prices skyrocketed after the announcement. Other institutional players like Invesco and Wisdom Tree Investments quickly followed suit, filing one-off applications for bitcoin ETFs previously filed with regulators.
The continuation of the effort faced a major obstacle. The SEC has rejected 27 previous applications for bitcoin ETFs since 2013, arguing that the products were vulnerable to market manipulation.
In 2021, the Tree of Wisdom was effectively rejected. Management firm Grayscale Investments sued the SEC for preventing the Grayscale Bitcoin Trust ( GBTC ) from becoming a local bitcoin offering.
"Conflict of interests"
Another catalyst for the industry came this week when Citadel, a new cryptocurrency exchange backed by Fidelity and Charles Schwab, said it had gone live.
EDX Markets began discussing its plans as a late-2022 transaction that would "eliminate significant conflicts of interest plaguing existing cryptocurrency exchanges."
He did the same last week, referring to "any oversight model designed to mitigate conflicts of interest." You won't be managing digital assets owned by customers, but instead managing a marketplace where buyers and sellers interact directly with each other.
FTX's collapse last year revealed that a subsidiary trading company was using client assets to run its own business. The SEC also alleged that Binance misappropriated client funds, which Binance denied.
Earlier this month, SEC Chairman Gary Gensler told reporters that the standard business model for cryptocurrency exchanges is based on "dispute," "limited disclosure," and "occasionally fraud."
EDX CEO Jamil Nazarali said in an interview that "FTX has just validated our business model." He added that EDC "takes the best of the digital world, combining it with 24/7 commerce, a host of blockchain innovations, and investor protection in traditional finance."
EDX says that it will only offer trading in four cryptocurrencies: Bitcoin, Ether, Litecoin, and Bitcoin. The SEC does not recognize any of these assets as securities, allowing EDX to avoid some of the problems Coinbase and Binance face.
Together, these exchanges allow the trading of 19 digital currencies that the SEC has designated as securities, which means they must be registered with the agency. According to data compiled by Cryptorank.io, the agency named 55 cryptocurrencies as securities in various lawsuits.
Coinbase is fighting the lawsuit and rejecting the SEC's claims. On Thursday, its chief executive officer, Brian Armstrong, was unfazed while speaking at a crypto conference in New York.
Instead, he said that in the next five to seven years, Coinbase's platform could become a "super app" like WeChat, which is used in Asia for everything from messaging to banking to food ordering.
"Despite the negative rhetoric and headlines, this industry is moving forward," he said.
Roger Beston, head of digital assets at Franklin Templeton, said regulatory oversight was necessary.
"While there are reasons, the transparency of the rules paves the way for standards that will allow the flow of capital," he told Yahoo Finance.
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