It took the cryptocurrency business many years to win the confidence of the biggest Wall Street institutions, as well as their financial support. The chaotic collapse of Sam Bankman-crypto Fried’s empire has revived comparisons of the digital-asset business to the Wild West just as more significant traditional players appeared on the verge of entering the rapidly expanding blockchain marketplaces.
Trust is the easiest thing in the world to lose and the hardest thing in the world to regain, according to Welsh poet Robert Williams.
The new challenges in the cryptocurrency sector raise the question of whether big banks would seize this as a chance to enter blockchain-based markets.
Wall Street is starting to accept cryptocurrencies to the extent that it sees value in them for their own future, as evidenced by the signing of two well-known crypto exchanges as clients by the American banking giant JPMorgan Chase in May of this year.
Could some large banks be attempting to save the industry when it is in trouble, just as John Pierpont Morgan previously saved the banking sector in the early 20th century, before the Federal Reserve was established? (The Fed, which is renowned for preventing the collapse of Wall Street during the 2008 financial crisis, does not support the looser-regulated crypto economy.)
“Banks are the natural enemy of the crypto industry because they both sell purportedly the same product line, so it’s unlikely that they would be willing to step in to assist the industry,” Odeon Capital Group chief financial strategist Dick Bove said.
The Bank Policy Institute, which speaks for large banks, said in a press release after the collapse of the cryptocurrency exchange FTX that “policymakers should ensure they do not embed crypto firms in the heart of the financial system by giving them Fed accounts. As FTX files for bankruptcy after failing to secure a bailout.”
When they do, “Financial stability could be threatened by the next cryptoverse catastrophe, the statement said.
However, banks have started to show an increasing amount of interest and have attempted to enter the market. Apart from JPMorgan, the cryptocurrency-friendly Silvergate Bank signed over 850 customers for digital currencies, including 61 exchanges, 541 institutional investors, and 248 other clients.
“The banks that are in this business are going to say, ‘It’s not going to cause a problem for us,’ and the ones who aren’t in it will say, ‘We told you so,’ but they’re not going to be of any help,” Bove said.
Since the company disclosed that it has exposure to the defunct cryptocurrency exchange FTX, Silvergate’s shares has fallen 10% in November. As of September 30, the bank had received deposits totaling $11.9 billion from all customers who had purchased digital assets, of which less than 10% came from FTX.
“For heavily U.S.-regulated exchanges, I doubt that Wall Street would be interested,” said Jim Bianco, president and macro strategist at Bianco Research. “For off-shore exchanges, their regulator would probably force them to resign if they touched any of them.”
He claims that conventional banks lack sufficient knowledge of the cryptocurrency industry to incur the risk of investing.
Given how many government officials have been vocal about the hazards associated with the digital-asset market, it goes without saying that regulators may be reluctant to even permit large Wall Street firms to acquire a sizable crypto firm. They have been slow to develop a comprehensive regulatory framework that would accept cryptocurrency as a component of the current financial system.
According to Bove, Wall Street banks probably don’t mind too much seeing the collapse of the cryptocurrency business.
