The booming cryptocurrency market has become the talk of the United States and the better part of the world since the start of 2021. No longer viewed as long-shot, speculative assets that provide more risk than benefit, Bitcoin, Ethereum and other viable coins have become highly sought after by institutional investors and day traders alike, coinciding with an unprecedented rise in valuation and newfound respect for the cryptocurrency market as a whole.
The majority of the financial industry – primarily big banks and their long-tenured, more conservative executives – initially scoffed at the potential legitimacy of cryptocurrencies and refused to take the idea of these virtual assets becoming viable payment options for traditional goods and services moving forward that seriously. It could be argued that the old guard simply did not understand the power of cybercurrencies and the blockchain databases that back them, or care to enough to learn of their potential. Likewise, many were quick to discount the historic rise of options such as Dogecoin – a satirical peer-to-peer digital currency branded off of a viral meme from the early 2010’s featuring the image of a Shiba Inu dog – which has reached a market capitalization of over $85 billion and a rise in valuation of >25K percent over the past six months. With Dogecoin and other options gaining celebrity approval (Doge has been lauded by renowned social and business figures such as Tesla founder Elon Musk and billionaire entrepreneur Mark Cuban, among others) coupled with the timely arrival of stimulus checks over the past year, casual investors have been drawn to potential allure of making solid returns without having to make sizeable financial or educational investments into these options. As a result, Wall Street suits have been significantly outperformed over the past several months by “Robinhood investors” and crypto-traders with often little-to-no knowledge of the fundamentals of the assets in which they are in investing. Given the recent performance of crypto-currencies however, these same banks and Wall Street executives have begun to change their attitudes and are now scrambling to catch up with this trend before the well dries up.
JPMorgan and U.S. Bank have both recently announced their respective intentions to launch services that deal specifically with the cryptocurrency Bitcoin, marking the continued shift of widespread adoption of crypto as an asset class. Reports have indicated that the JPMorgan Chase service will be a Bitcoin fund that is actively managed by the bank – differing from services offered by other institutions such as Pantera Capital and Galaxy Digital that are passively managed and leave funds relatively untouched. JPMorgan’s decision to embrace crypto was certainly surprising considering the fact that the firm’s CEO, Jamie Dimon, has criticized Bitcoin in the past, going as far as to call the coin a ”dangerous fraud” in 2017 (coindesk). It appears that the increased demand from company clientele for exposure into these markets has in part contributed to Dimon’s recent change of heart and demonstrates crypto’s rise towards true legitimacy and mainstream adoption.
With respect to U.S. Bank, part of the fifth largest financial institution by total assets in the United States, the firm intends to offer a cryptocurrency custody product for managing these assets, too responding to increasing requests from pension funds and insurance companies among other institutional investors seeking access to Bitcoin and other cryptocurrencies. American Banker writes that U.S. Bank “has developed some of the infrastructure needed for cryptocurrency custody, such as anti-money-laundering and know-your-customer processes, and has chosen a subcustodian, as yet unnamed, for storing crypto assets.”1 The firm certainly believes in the future of Bitcoin and they are committing plenty of resources to prove it, also recently announcing that they will be the administrator for the NYDIG Bitcoin ETF should their proposal be approved by the Securities and Exchange Commission.2 Other firms have also begun to take notice of this shift. Citigroup is the latest to jump on the crypto bandwagon, with news of potential ventures breaking in the last few days. While the banking conglomerate has yet to announce anything more concrete than simply interest in crypto, Citi believes that Bitcoin is the “North Star” of crypto in that it will foretell the direction of the industry as a whole moving forward.
As of early 2021, all signs are pointing to mainstream acceptance of cryptocurrencies despite regulatory questions that still remain, specifically in the U.S. where the government is still debating the classification of these assets as currency or securities. In weeks past Global RADAR discussed Anti-Money Laundering (AML) regulations already being developed by the European Union and other jurisdictions with respect to crypto, and just this week Turkey announced its own. Through presidential decree, the country added cryptocurrency-trading platforms to the list of firms covered by their AML regulations.3 This trend will undoubtedly continue across many other countries moving forward, and as such, compliance departments of financial institutions small and large must stay at the ready.
- Crosman, Penny. “U.S. Bank to Offer Custody Service for Digital Assets.” American Banker, American Banker, 27 Apr. 2021.
- ETF Trends. “US Bank, JPMorgan Among Top Banks Making Big Crypto Moves.” Nasdaq, 28 Apr. 2021.
- Reynolds, Kevin. “Turkey Adds Crypto Trading Platforms to List of Firms Covered by AML Regulations.” CoinDesk, CoinDesk, 3 May 2021.