What Crypto Displaces Big BDs, Wealth Firms Are Doing After FTX Collapse | ThinkAdvisor
What do you want to know
- Here’s what Fidelity, BNY Mellon, BlackRock, JP Morgan, State Street, Goldman Sachs and other companies have in the works.
Bank of New York Mellon Corp. traces its history to 1784 and Alexander Hamilton. But even this venerable institution finds the lure of the crypto world too strong to resist.
Despite all that has gone wrong in the industry, with trillions in losses, spectacular bankruptcies, the arrest of Sam Bankman-Fried – the world’s largest custodian bank and other financial giants hoping to expand into cryptography – not shrink.
Cryptocurrencies are just a small part of the sprawling universe of digital assets they are targeting, betting that “crypto winter” will help them do what they haven’t quite been able to achieve for the now forgotten crypto spring: making inroads into key elements of the business once and for all.
They are moving forward with projects in the blockchain, the digital scaffolding that records transactions. They are expanding tokenization offerings – the issuance of tokens representing real, current assets like bonds.
Another focus is crypto custody, where companies protect assets for customers, even if recent guidance from regulators makes this more expensive.
From BNY Mellon – which launched a crypto custody platform a month before Bankman-Fried’s FTX filing for bankruptcy – to mutual fund giant Fidelity Investments, BlackRock Inc. and Nomura Holdings Inc., members of the Wall Street establishment are planning a future in digital assets.
“That will continue to be a priority for us, not so much for crypto, but really for the broader opportunity that exists through digital assets and distributed ledger technology,” said BNY Mellon CEO Robin Vince. this month during a call discussing earnings. “In fact, recent events in the crypto market only further underscore the need for trusted regulated providers in the digital asset space.”
A company spokesperson said they believe in the “transformative potential” of blockchain, with its ability to improve the accuracy of record keeping, the management of certain types of assets such as real estate and loans, as well as more efficient settlement.
But there are significant obstacles. Regulators, cool on crypto even before FTX fell, will almost certainly get tougher on increased exposure to companies they oversee. And with a slowdown looming, banks, under pressure to control costs, are making job cuts that could lower their ambitions.
Falling crypto prices and valuations will also not help rekindle investor demand, although a rebound in token prices this month could signal that the worst of the recent chaos is over. After a brutal 2022, Bitcoin is on course for its best January since 2013.
Here’s what the companies have planned:
At BlackRock, teams will continue to explore the use of digital assets in capital markets offerings, according to a person familiar with the matter. The world’s largest asset manager focuses on four areas: stablecoins, permissioned – or private – blockchain, tokenization and crypto assets.
Last year, BlackRock entered into a partnership with digital asset exchange Coinbase Global Inc. that would make it easier for institutional investors to manage and trade Bitcoin. A representative for BlackRock declined to comment on its plans.
Goldman Sachs unveiled its digital asset platform in November, hoping clients will use the technology to issue financial securities as digital assets in classes such as real estate.
The firm, along with Banco Santander SA and Société Générale SA, helped the European Investment Bank issue a digital bond last year using blockchain technology. Settlement took a minute, compared to the few days it would normally take, according to Mathew McDermott, global head of digital assets at Goldman.
“Using this technology allows us to transform the risk profile of a trade,” he said. “It’s not a pipe dream, there is real value.”
Goldman also has a team of seven traders who deal in cash-settled crypto derivatives for clients. The crypto desk, which was relaunched during the virtual currency rally of 2021, allows clients such as investment funds and trading firms to buy and sell cryptocurrency futures, non-deliverable futures and cash-settled options, as well as the ability to go short or long on certain exchange-traded products through the primary business.
JPMorgan Chase & Co. CEO Jamie Dimon has long lambasted cryptocurrencies. He recently likened crypto tokens to pet rocks and called Bitcoin a “fashionable fraud”.
But the bank has been active, spending several years developing blockchain-based systems to execute traditional financial transactions. It runs a number of projects from its Onyx blockchain division, including a ledger-based distributed payment network for banks, called Liink. It also has JPM Coin, a token used for payments, and a platform to tokenize traditional assets.
Fidelity Investments plans to expand the types of assets for which it offers custody beyond Bitcoin and Ether, although such plans are not imminent. The company will explore offerings around asset staking — a process that allows token holders to lock up their coins and earn returns in return — and lending, according to Chris Tyrer, institutional head of Fidelity Digital Assets.
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