And then there’s fellow billionaire investor Ken Griffin. Two years ago, he denounced the sector as a “jihadist call” to the dollar. His hedge fund, Citadel Securities, is now backing a recently launched platform that allows institutional investors to trade digital assets.
Fidelity Investments, the nation’s largest 401(k) management company, is one example. No one thinks the 77-year-old financial mogul is an anti-establishment rebel. However, the company is also moving on several fronts to get into cryptocurrencies. Last year, it began allowing workers to invest some of their retirement savings in Bitcoin. Its subsidiary, Fidelity Digital Assets, has joined Citadel and Charles Schwab in investing in a new cryptocurrency exchange called EDX. And like BlackRock, it is seeking approval from the Securities and Exchange Commission to introduce a publicly traded fund that tracks the real-time price of Bitcoin.
The cryptocurrency industry has built a cult fan base in the United States by promising to break Wall Street and Washington’s joint control of the financial system. But as the sector survives its precipitous decline and faces renewed scrutiny from the SEC, some of Wall Street’s biggest companies are trying to tap into the sector.
This development has put the US industry at a crossroads. After a brutal year-long meltdown left a trail of bankrupt crypto companies, criminally charged entrepreneurs, disgraced celebrity advocates, and devastated investors, people turned against cryptocurrencies. interest is soaring. As the hype dries up, financial giants see an opportunity to profit by offering customers a simplified menu of crypto products and services that are less likely to be scrutinized by regulators.
Whether the cryptocurrency’s founding ambition to democratize finance will survive remains an open question.
“Assets often move from weak hands to strong hands in a bear market,” said Matthew Siegel, head of digital asset research at fund manager VanEck. “We think that’s what’s happening with cryptocurrencies. It was retailers and inexperienced players who lost a lot last year, but now traditional financial giants are here. Come.
Tyler Gerash, president and CEO of investor advocacy group Healthy Markets, said these companies can pick up where failed crypto companies left off.
“While many cryptocurrency companies have built their businesses around non-compliance with the law, traditional financial firms already have the ability to make money trading assets and operating exchanges while complying with securities laws,” he said. I am learning,” he said. “The SEC may appreciate it, and serious institutional and retail investors will certainly appreciate it.”
Fidelity declined to comment. However, Jamil Nazarari, CEO of EDX, the firm’s backed institutional crypto trading platform, said some financial institutions are waiting for regulatory clarity before entering. “More companies are coming in,” he said.
For some financiers, this development represents the inevitable liquidation of a sector that has grown overnight into a $3 trillion behemoth at its peak in late 2021 while ignoring decades of investor protection laws. It is said to indicate
“Those who perceive that, like it or not, cryptocurrencies will live on and that the current environment and market structure for cryptocurrencies lack many of the protections traditional finance takes for granted. more and more,” Nazarari said. He left Citadel last year to launch EDX.
These protections were, at best, an afterthought for venture capitalists, entrepreneurs, and everyday traders who jumped on crypto when it began its rocket-like rise two years ago. Americans stayed home during the coronavirus pandemic, suddenly raking in big bucks in stimulus checks, opening up a huge new pool of money in an industry that has long been a sanctuary for hardcore fringes bottom.
Stories on social media of new crypto tokens creating wealth out of nowhere have fueled a viral epidemic that has sent millions of Americans to platforms like Coinbase where they can easily open an account and start trading from their smartphones. people flocked. At its peak in November 2021, the value of the entire cryptocurrency market had quadrupled since the beginning of the year. The industry has become a pop culture phenomenon, with trading platforms Crypto.com and FTX spending tens of millions of dollars to name major sports arenas, and early 2022 Super Bowl broadcasts dominated by cryptocurrency ads. rice field.
And the bubble burst even faster than the cryptocurrency bubble did. The implosion of a digital coin dubbed TerraUSD in May 2022 set off a chain reaction that collapsed three other major cryptocurrency companies in the weeks that followed, shattering investor confidence and slashing the value of the entire market by roughly half. reduced to The already devastated industry saw the November collapse of one of the world’s largest cryptocurrency exchanges, FTX, which claimed itself to be a responsible operator, prompting executives to dump customer funds for risky investments and personal use. It was hit further in November, leading to allegations of misappropriation of funds for unpaid expenses.
Bitcoin has made a massive comeback this year, nearly doubling in price. Stocks rose sharply in March as mid-size bank failures shook confidence in the banking system, but have risen again in recent weeks on news of demand for assets by institutional investors.
The SEC, whose chairman Gary Gensler has long accused cryptocurrency companies of operating illegally, effectively ended the wild west era of cryptocurrencies last month. The agency has taken its most aggressive action yet to crack down on the sector, filing charges against two of the largest cryptocurrency trading platforms, Binance and Coinbase, on consecutive days. It charged the companies with violating securities laws designed to prevent conflicts of interest and disclose fundamental information to investors.
SEC One-Two Punch Against Companies Taking Disparate Approaches To Regulatory Compliance Shows New SEC Aggressive Push to crack down on the industry. Binance, which operates offshore, still faces criminal investigations from US authorities. In contrast, US-based Coinbase is listed and claims to be a safe choice for everyday investors.
“We knew something was going to happen, but we didn’t expect it to be this big,” said Kristen Smith, CEO of the Blockchain Association. She pointed to the SEC’s decision in the Coinbase lawsuit, arguing that the 13 crypto tokens listed on the platform qualify as securities and that their designation is subject to regulatory oversight.
As Washington and Wall Street move into cryptocurrencies, tech-minded investors in San Francisco are also on the move. Bars and restaurants are replacing choking conversations about cryptocurrencies with conversations about artificial intelligence. The self-proclaimed cryptocurrency cultist venture capitalist is now pivoting to his AI. Tech influencers on social media who used to beg people to buy cryptocurrencies are now posting about the wonders of ChatGPT and other AI tools.
Young people have migrated to San Francisco to attend “hacker houses” and to attend AI-focused parties, and so far, waves of people have flooded the city in search of investors and co-founders. It is wiping out the gold rush to cryptocurrencies that brought
Meanwhile, the huge amount of money pouring into crypto startups from venture capital firms has slowed to a trickle. According to research firm Pitchbook, 794 venture capital firms will invest in cryptocurrency companies in 2021, bringing the total investment to $18.1 billion. In 2022, the industry continued to grow, with 831 deals worth $22.8 billion. But this year, the investment pace has fallen off a cliff. Halfway through the year, he has just 105 venture investments and $2 billion in investment.
Cryptocurrency traders have also scaled back activity. A total of $56 billion worth of cryptocurrency traded across the top five U.S. platforms in May, the lowest volume since October 2020, according to Riyad Carey, a research analyst at cryptocurrency data firm Kyko. rice field.
Neglected interest has taken a toll on Coinbase, which in May reported a loss of $79 million in the first three months of the year, its fifth consecutive quarter of losses. Nonetheless, the company’s share price has risen in recent weeks following news that BlackRock has named the company a partner of its Bitcoin fund.
Mizuho Securities analyst Dan Dreff said Coinbase still has little to celebrate ahead of the SEC lawsuit. “I’m not going to defy regulators,” he said. He believes the company needs to accept the inevitable and adopt a narrower, less profitable business model.
Coinbase has said it will continue to operate “as usual” while the legal process is underway, but “they are like Wile E. Coyote before he realizes it after running off a cliff. ‘” said Drev. “That’s exactly what’s happening.”
Gerrit De Vynck contributed to this report.
