Wall Street & Cryptocurrency
2018 has been an interesting year so far in crypto. We had the euphoric highs of the market in January and February, only to enter a bear market shortly after. We have continued to downtrend, moving from a market cap of over $800 Billion right down to under $200 Billion. It has been tough for many HODLers and especially for those who only entered the market for the first time at the start of the year.
With that being said, many large financial institutions and wall street are preparing themselves for the next market cycle. The next bull run will surely see prices rising to near all time highs once again. Wall street has always had a funny relationship with crypto. We had JP Morgan CEO, Jamie Dimon professed last year that Bitcoin is a “scam” and saying he had “no interest” in it. As the market continued to grow however, it became hard for wall street to ignore its significance. The attitude of many banks towards the digital asset economy has changed significantly since 2017 and we are now seeing them embrace blockchain and cryptocurrency offerings.
Another interesting shift we have seen is top talent and executives from wall street going the other way and joining blockchain and cryptocurrency projects and investment firms. Many of these executives recognise the opportunity that this technology is going to play in the next decade. They are positioning themselves to bring about this new wave of innovation.
JP Morgan Chase
As we mentioned, CEO Jamie Dimon was not a fan of Bitcoin and crypto when asked about it in 2017. He even went so far as threatening to fire any traders within JP Morgan who were selling Bitcoin on behalf of clients. The company began to change its tune in 2018 however when they announced that they would consider offering clients access to the Chicago Mercantile Exchange’s Bitcoin futures market.
Dimon also said he regretted his comments in 2017 while maintaining that he had a “lack of interest” in the overall crypto space. JP Morgan’s annual report to the SEC in Febraury of 2018 also began to reflect their new stance on crypto stating:
“Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”
JP Morgan Chase continue to explore both Blockchain technology and cryptocurrency digital assets. In May, they filed a patent for a peer-to-peer (p2p) payment system using blockchain technology for intra and inter-bank settlements. They also created a role entitled “head of crypto-assets strategy” within their organisation.
Goldman Sachs has been dabbling in cryptocurrency for the past few months. They initially refuted any ideas that they were exploring the digital assets realm. Since May of 2018 though, Goldman Sachs executive Rana Yared confirmed that the company intends to buy and sell Bitcoin, having concluded that cryptocurrency is “not a fraud”.
With growing interest in the crypto space from Goldman’s clients, they hired cryptocurrency trader Justin Schmidt back in April. Other executives have moved the opposite way. Former Goldman Sachs executive Breanne Madigan having moved to cryptocurrency wallet Blockchain.com in April also.
In June, Goldman then confirmed they planned to launch a cryptocurrency derivatives trading desk. Their COO, David Solomon, also stated they are already helping customers clear Bitcoin futures.
Just this week too, Goldman Sachs startup Circle, the Boston-based crypto finance company, has gone live with its stablecoin called the US Dollar Coin, or USDC. This is the first cryptocurrency to be released by a major financial institution.
Morgan Stanley has also had an interesting relationship with blockchain technology in particular. They have apparently been using Blockchain technology as early as March of 2016 to maintain backup records and process transactions.
The cryptocurrency market on the other hand is a different animal. Once the market began taking off in 2017 Morgan Stanley CEO James Gorman stated that:
“It’s obviously highly speculative, but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.”
A few months later they announced that they were helping clients clear Bitcoin Futures contracts. They also speculated that financial markets would move towards the use of cryptocurrencies in the future.
“Over the coming years, we think that the market focus could turn increasingly toward cross trades between cryptocurrencies/tokens, which would transact via distributed ledgers only and not via the banking system.”
New York Stock Exchange
We have already written about how the Intercontinental Exchange (ICE), the owners of the NYSE, are launching Bakkt. Bakkt is being created as a regulated, global ecosystem for digital assets. They want to allow consumers and institutions to buy, sell, store and spend digital assets on a seamless global network. Bakkt’s first use case will be for the trading and conversion of Bitcoin against traditional fiat currencies. They endeavour to launch as early as November 2018.
The Future of Digital Asset Trading
Such is the progression of technology in the crypto space, it is now moving at a pace that big banks and Wall Street can’t ignore. It is now coming to a stage where it is a risk for these financial institutions to not have exposure to digital assets like Bitcoin. They already know this and have now began taking action to put in place the necessary trading desks, tools and people to transition and benefit from the shift towards a more digital economy.
As the pace of innovation continues to increase in the blockchain and crypto space, wall street will continue to put in place measures to close the gap. It will be very interesting to see which institutions embrace digital assets wholeheartedly and if the others will follow suit. This could lead to a huge amount of institutional money flooding the cryptocurrency markets over the coming months.