Guides
Guide To Wall Street Interest In Crypto
It wasn’t too long ago that Bitcoin and cryptos were largely frowned upon, seen as a tool only relevant to terrorists and drug dealers. But 2018 has seen a huge spike of interest from Wall Street and many of the top firms in the traditional financial space have been scrambling to find their footing around regulatory uncertainty and react to the surge in demand from their clients.
It’s no secret that fresh capital and demand is needed to take the crypto market to new highs, and thus everyone has been wondering where the institutional demand will come from and which large companies will lay the groundwork to allow this on-ramp to happen. Below we present the key actors that are starting to make moves and could serve as catalysts to drive demand upwards.
Assets Under Management: $2.8 Trillion
JPMorgan Chase
JP Morgan has been exploring blockchain tech for over two years in a bid to use the nascent technology to solve banking-related inefficiencies. The bank’s Blockchain Center of Excellence department developed in conjunction with the Ethereum Enterprise Alliance a project called Quorum, which is currently branded as an “enterprise-focused version of Ethereum”. In March 2018 JP Morgan announced that in light of the platforms popularity and potential, they were considering spinning it off as a separate entity. This is just one of the enterprise platforms that they’re working on and JPM has continuously been at the forefront of financial firms seeking to patent blockchain based securities services.
Even JP Morgan CEO Jamie Dimon who grabbed headlines in September of 2017, when he slammed Bitcoin as a fraud and pretty much threatened anyone in his company they’d be out of a job if he caught them trading cryptocurrencies, has since softened his tune. In an interview with HBR in July 2018, Dimon admitted that blockchain is something they’re testing and that they “will use it for a whole lot of things”.
JP Morgan has thus far been more focused on blockchain tech than offering its clients with crypto investment opportunities, despite a report in November 2017 by the WSJ that they were considering whether to provide its clients access to CME’s new bitcoin product through its futures-brokerage unit. In May 2018, the firm created a new position called “Head of Crypto-Assets Strategy” with the aim of seeking out cryptocurrency projects that can be taken to market. It’s recently been rumored that they will be using Bakkt’s infrastructure to service their clients.
Assets Under Management: $1.5 Trillion
Goldman Sachs
In 2015 Goldman Sachs got its feet wet into the world of cryptocurrencies by investing in a Bitcoin brokerage firm called Circle. Towards the end of 2017, rumors began circulating that Goldman Sachs was setting up plans to open its own crypto trading desk. This was confirmed by Bloomberg in December 2017, with plans to launch sometime at end of June 2018. In May of 2018 the NY Times reiterated Goldman’s crypto ambitions, but regulatory approval was quoted as a key hurdle from allowing them to move forward. In July 2018 Lloyd Blankfein’s 12 year long tenure as the Goldman Sachs CEO came to an end, replaced by David Solomon who was reported to be much more keen on Bitcoin and crypto than his predecessor. Solomon mentioned that his firm already offered clients publicly-traded derivatives tied to Bitcoin but said they must “evolve its business and adapt to the environment.”
On September 5 2018, Business Insider surprisingly reported that Goldman was ditching its near-term plans to open a trading desk to focus instead on a crypto custody solution, which was hinted at in August. Goldman CFO Marty Chavez quickly refuted that report as “fake news” the next day in an interview with TechCrunch and said that while their custody solution is not ready so trading ‘physical’ Bitcoin wasn’t not yet possible for them, they were building a trading platform modeled on a commodities futures trading platform. Thus currently Goldman is on track to provide over the counter derivatives, with physical custodial solutions coming further down the line.
Assets Under Management: $474 Billion
Morgan Stanley
Morgan Stanley, just like JP Morgan, has been a bank that’s been proactively testing blockchain technology in some use cases. Along with Bank of New York Mellon, Morgan Stanley have been using blockchain technology based platforms as far back as March 2016 to maintain backup records and process transactions.
Morgan Stanley joined Goldman in January of 2018 when it announced that they too were clearing Bitcoin futures contracts for big institutional clients. CFO Jonathan Pruzan said at the time that Morgan Stanley were not offering custody solutions but were having regular meetings among executives to consider how else to engage with cryptocurrencies. Morgan Stanley CEO James Gorman hasn’t been as dismissive as some other Wall Street CEOs regarding digital currencies and admitted back in September 2017 that they were ‘more than just a fad’.
In July 2018, the firm hired Andrew Peel, a self declared “subject matter expert for bitcoin and cryptocurrency” as “Head of Digital Asset Markets”. In September 2018, Bloomberg got the scoop on Morgan Stanley’s plans for a product that would allow clients to get synthetic exposure to the performance of Bitcoin. It would allow investors to go long or short price return swaps and Morgan Stanley would charge a spread for each transaction. The technical capability seems to be there and Bitcoin swap trading will supposedly go live following an internal approval process and once there is proven institutional client demand.
Assets Under Management: $6.3 Trillion
BlackRock
As the world’s largest assets manager , BlackRock made huge waves in July 2018 when they announced they were setting up a working group to assess their potential involvement in the crypto space. A BlackRock spokeswoman said the company had been “looking at blockchain technology for several years”, dating back to 2015. The newly formed cross-functional team will investigate crypto currencies and their underlying infrastructure and report their findings to senior management.
BlackRock CEO Larry Fink hasn’t historically been too fond of cryptos, highlighting back in October 2017 its frequent association with money-laundering. Fink remained skeptical on cryptos in an interview with Bloomberg in July 2018, but expressed that he’s “very excited” about blockchain technology. It was reported in September 2018 that Coinbase has been in talks with BlackRock’s aforementioned working group to seek help in launching a Bitcoin ETF. BlackRock reportedly didn’t give any concrete recommendations, which is inline with the firms mixed stance on the subject after the CEO had said in the previously mentioned interview he didn’t believe “any client sought out crypto exposure”. It remains to be seen how the world’s largest exchange-traded fund (ETF) provider will proceed.
Bakkt
In August of 2018, the crypto world got perhaps its biggest news of the year when ICE (Intercontinental Exchange) announced their 14 months in the making grand ambitions in the digital asset space. In conjunction with Microsoft’s cloud expertise, Starbuck’s extensive know-how in the field of mobile payment, and ICE’s (as one of the largest exchange groups in the world) leadership in the field of financial and commodity markets – a new platform called “Bakkt” was formed.
At the time much of the focus was on the consumer facing section of the platform, and whether the likes of Starbucks would really be accepting cryptos. However it soon became apparent that this was only a fraction of the plans and perhaps most important was the announcement of a fully regulated onramp, which would combine a major CFTC-regulated exchange with CFTC-regulated clearing and custody. Such a solution would actually be backed by real bitcoins and contrary to many of the services offered by other names on this list, would signify direct exposure to physical Bitcoin and potentially other digital currencies down the line.
Bakkt, which has been actively recruiting former Coinbase employees, will begin its onboarding and testing phase in November 2018 with trading scheduled to begin in December, subject to CFTC approval. Bakkt CEO Kelly Loeffler hasn’t shied away from expressing the extent of the company’s vision: “We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”
Assets Under Management: $2.6 Trillion
Fidelity
Fidelity has always had a bullish tone when it came to Bitcoin and cryptocurrencies. The world’s 4th largest asset manager dipped its toes into the world of cryptos back in 2015 when it began accepting Bitcoin donations for its charity operation Fidelity Charitable (the second-largest nonprofit fund-raiser in the U.S). The company has mined cryptos and even allowed employees to make purchases with Bitcoin in their Boston offices. In 2017 the firm’s internal crypto fund was forced to suspend operations after two employees involved in the project left to start their own crypto funds. However Fidelity plans to resume operations as it seeks to find a new fund manager.
Fidelity CEO Abigail Johnson (who’s family owns 49% of Fidelity) hasn’t shied away from from evangelizing Bitcoin and admitted to being a big fan of the space in a rare speech at Consensus 2017. Ms. Johnson first became interested in Bitcoin and blockchain tech back in 2014 when the company’s Fidelity Labs began researching disruptive emerging technology and has allegedly personally participated in several of the firm’s crypto initiatives since.
In June 2018, Business Insider reported that Fidelity is planning to make a big move into the world of cryptocurrencies after it got its hand on some job ads. While some clients can already view their crypto holdings next to their other accounts, the plan is to go much further including building its own digital asset exchange as well as custody solutions. During Boston Fintech Week, Ms. Johnson confirmed they had “a few things underway” and that they hoped to have some things to announce by the end of 2018.
In mid-October Fidelity announced a new and separate company called Fidelity Digital Asset Services that will handle custody of cryptocurrencies and execute trades on behalf of institutional clients. The new standalone company has around 100 employees and is already in the process of onboarding its first clients with more widespread availability scheduled in early part of 2019.
Assets Under Management: $158 Billion
Citigroup
Citigroup have been looking into blockchain technology for a long time. Back in 2015 Ken Moore, head of Citi Innovation Labs, was quoted as saying that they have been looking at distributed ledger technology for “the last few years”. They were running tests on their very own version of Bitcoin called Citicoin, in the hopes of removing inefficiencies and counter party risk relating to the bank’s cross border prescence. In an interview with Bloomberg in 2017, Citigroup CEO Michael Corbat made it clear that he didn’t think cryptocurrencies were going away and that governments would likely feel threatened and produce their own versions.
In 2017 Nasdaq and Citigroup partnered up and revealed a new blockchain payments initiative that was 3 years in the making. In July 2018, it was announced that Citigroup and 8 other banks would be part of a trial project by CLS and IBM called LedgerConnect, an app store trial for programs based on blockchain technology. In September 2018, Citigroup announced perhaps their biggest plans yet with a product called Digital Asset Receipt (DAR) that is said to enable institutional investors to invest in cryptocurrencies in a fully insured and regulated manner. This direct investment method goes around the tricky regulatory hurdles by emulating American depositary receipts, which has enabled US investors to own foreign stocks for decades.
Assets Under Management: $1.1 Trillion
Bank of America
Bank of America are part of R3‘s consortium of dozens of banks developing frameworks for applying blockchain tech to markets. America’s second largest bank doesn’t exactly see cryptos in the best of lights however. In May 2017, BofA CTO Cathy Bessant expressed her opinion that cryptocurrencies as a payment system are ‘troubling’ since there is no transparency in between the sender and receiver. They admitted in February of 2018 in their annual 10-K filing with the SEC hat cryptocurrency poses a threat to their business.
Despite what they’ve said publicly, BofA have been quietly trying to get its hands onto blockchain technology for years now, filing for over 50 blockchain patents going back to 2014, making it the largest holder of blockchain related patents. Recently in August of 2018, they filed for patents for a system that manages cyrptocurrency storage in an enterprise environment. Their recent filings relating to an online vault storage system and cold storage system suggests they might also be thinking of getting involved on the custody size as well.
Other Key Developments
Below is a series of important news that further demonstrate large players entering the space.
In May 2018 Nomura, a leading investment bank headquartered in Japan with nearly half a trillion dollars in assets under management, became the first bank to offer custody services for digital assets by partnering with Ledger and Global Advisors. The new venture called Komainu will provide infrastructure and operational framework to allow institutional level investments that previously was not possible.
After being one of the first online brokerages to offer investors access to Bitcoin futures back in December of 2017, TD Ameritrade announced in October 2018 that it was making a strategic investment in a cryptocurrency spot and futures exchange called ErisX. The platform will provide a crypto on-ramp to retail and institutional investors and signals the company is “all-in” to the world of cryptocurrences.
That wraps up our look at what some of the biggest members of the traditional financial space are up to when it comes to cryptocurrencies. There seems to be a clear trend across the board on Wall Street first largely dismissing cryptocurrencies but instead electing to focus on researching the underlying blockchain technology itself. However in the last few months the trend has largely shifted with all major players seriously looking into providing their clients with custodial solutions to actually owning Bitcoin or derivatives of it. Whether this is due to overwhelming current client demand or just an expectation of the future remains to be seen – but one thing is clear and that’s the fact that cryptocurrencies have become something Wall Street can no longer ignore.
We’ll be sure to keep this page updated with any developments, so do bookmark it and revisit from time to time.