November 25th – December 1st
PERSPECTIVES by Eric F. Risley
It’s time for a sense of urgency.
The portion of the crypto industry associated with investing is entering a new era. Like it or not, traditional financial institutions are coming.
This era is nothing like the mantra of 2020–early 2022, which was a positively biased investment narrative (“the institutions are coming”) suggesting that large institutional investors were beginning to allocate a portion of assets under management to crypto assets, driving demand.
Eleven months ago, two of the largest global money managers, BlackRock and Fidelity, formally entered our industry with a 30-year-old product: an exchange-traded fund (ETF) for Bitcoin. Today, these two ETFs combined now hold $67.5 billion in Bitcoin, roughly 3.5% of the total Bitcoin supply, and are likely to become the second-largest single holder behind Satoshi Nakamoto. Today, not a single crypto-native broker or exchange can offer this form of product to their clients, as an ETF is a security and none have the necessary regulatory licensing.
Today, Robinhood, eToro, PayPal, Block, Interactive Brokers, and Fidelity all offer limited direct access to crypto assets and, with additional regulatory clarity, will broaden their support. Even more importantly, large banks and their associated securities brokerage businesses will begin offering crypto asset investing as regulations solidify. Think JP Morgan, BofA Securities, Morgan Stanley, HSBC, BNP Paribas, Charles Schwab, Barclays, UBS… These organizations have broad and deep client relationships (both institutional and retail investors), already manage the majority of global wealth, and can offer a full spectrum of investment alternatives, not just crypto.
As the phenomenon of “tokenization” takes hold, the majority of the use cases involve the creation of what are essentially tokenized securities. Again, traditional financial institutions dominate, and the crypto-native players are simply not prepared to even begin to compete, lacking regulatory licenses, origination or distribution capabilities, and the ability to trade these instruments due to lacking regulated exchange status.
The message is simple: Our industry will be quickly transitioning to a sense of strategic urgency as the competitive environment becomes more complex and competitive. Leading players like Coinbase, Kraken, OKX, Binance, and many more are well-positioned; however, over the next few years, each will need to transform in a variety of ways.
Crypto doesn’t stand alone.
