BUSTED TRADE

Wall Street is moving into the bitcoin market. So why aren’t prices rising?

Obsession
Future of Finance
Obsession
Future of Finance

Wall Street is working its way into the world of bitcoin, with several notable firms announcing this month that they are getting ready to participate in the market. You might think mainstream support for the highly speculative digital asset would give bitcoin and its crypto cousins a boost, as it helps unlock demand from much bigger investors.

However, the crypto market seems unimpressed. Bitcoin prices are down this month.

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This is despite a New York Times report that Goldman Sachs will post bids and offers for bitcoin futures, and is looking into ways to trade actual crypto tokens. A few days later, the newspaper reported that Intercontinental Exchange—the owner of the New York Stock Exchange—is discussing a type of bitcoin swap for institutional investors.

These derivatives could help open the door for large investors to get exposure to digital tokens, as there’s still a great deal of uncertainty about how crypto will be regulated. But futures and swaps can allow traders to bet on just about any asset’s price and, importantly, they fall under existing regulations administered by the US Commodity Futures Trading Commission.

Other financial firms are also looking at ways to build scaffolding around the crypto market. Bloomberg, which runs the most popular data and messaging platform for Wall Street traders, said recently that it’s launching an index for the largest, most liquid crypto assets. It partnered with Galaxy Digital Capital Management, which was founded by former Goldman partner Mike Novogratz.

These aren’t the first forays by big finance into crypto. Bitcoin futures started trading at global derivatives exchanges in Chicago last year, just as digital token prices were soaring, with bitcoin peaking at nearly $20,000.

In a March earnings call, BNY Mellon executives said they were looking at ways to play a role in the custody of cryptocurrencies. The bank has $33 trillion (pdf) of assets under custody and administration. Custody—safeguarding a customer’s assets against theft or loss—is arguably one of the biggest challenges for crypto investors, as exchanges have often had their holdings stolen by hackers. Unlike institutional financial markets, crypto exchanges typically don’t have a specialized, separation of duties for this service.

Maybe bitcoin prices would be even lower without the growing interest from Wall Street stalwarts. But so far, the advance of traditional financial players into the burgeoning crypto market hasn’t marked a return to the euphoria and soaring prices seen last year.

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