RE <<Bitcoin is not going away>>
economist.com
As bitcoin lurches, Wall Street plots its way into cryptoland
To work out the fate of crypto-investing, watch what the banks do next
May 20th 2021
America’s big banks have been venturing into cryptoland. In March Morgan Stanley became the first to offer wealthy customers access to bitcoin funds. This month Goldman Sachs revived the crypto desk it had mothballed in 2017; Citigroup said it may offer crypto services. BNY Mellon and State Street are vying to administer bitcoin exchange-traded funds, currently under regulatory review in America. JPMorgan Chase, once adamant that it would steer clear unless cryptocurrencies began to be regulated, has hinted that it might start trading operations if the market expands.
Why are highly regulated banks wandering into the unregulated wilderness of crypto? It helps that watchdogs in America have been setting out what services banks can provide. Last year the Office of the Comptroller of the Currency said they could offer custodial services for crypto assets. The Commodity Futures Trading Commission regards bitcoin and other digital currencies as commodities, enabling banks to trade derivatives linked to them.
The main reason for banks’ enthusiasm, though, is obsessive interest from some customers. A year ago Itay Tuchman, Citigroup’s foreign-exchange chief, hardly ever fielded calls on crypto from institutional clients. Now he receives them several times a week, he says. Roman Regelman of BNY Mellon deems the craze “an opportunity, but also an imperative”. Wealthy clients are pulling money out of private banks, and retail punters out of current accounts, to bet on digital currencies through fintech firms and startups. Many would rather do everything with their banks, which, in turn, hope to reap the rewards in customer fees and data.
Perhaps the easiest service to offer is derivatives trading, as Goldman now does, providing clients with exposure to the assets without having to buy them. Then comes custody: the storage, and related book-keeping, of assets on behalf of big investors. This requires investing in technology; the few banks already selling custody subcontract tasks to specialist firms.
But it is the next level of services, where banks hold digital assets on their balance-sheets, either as collateral or by trading in spot markets, that is currently beyond reach. After a day like May 19th, when bitcoin lost nearly a third of its value in a few hours, regulators may ensure it stays that way. Even if banks do not trade directly, says Chris Zuehlke of Cumberland, a Chicago-based firm that helped Goldman execute its first big “block” trade of crypto futures on May 6th, they could still connect clients to large spot traders, acting as the shopfront but relying on the infrastructure, and balance-sheets, of others. |
