By
Steve Muchoki
April 19th, 2024
Established Wall Street companies slowed their already halting efforts to make a business out of crypto mania this year. They didn’t really give up, but most of them flinched as the value of virtual coins collapsed.
It seems that, at least for now, Wall Street is backing off its Bitcoin and crypto ambitions. The cryptocurrency mania of 2017 was impossible for Wall Street to ignore, but a mainstream avalanche into crypto is easier said than done, and a stampede of clients demanding crypto-based products from their institutional brokers just hasn’t materialized yet.
Around $700 billion was totally wiped off the market since its peak at around $800 billion at the start of the year, and leaving a trail of destroyed startups behind it. Bitcoin at one point closed in on the $3,000 price mark, well below both its peak of nearly $20,000 in 2017 and a so-called “floor” of $6,000. And now major Wall Street firms once rumored to be preparing entries to the cryptocurrency market, particularly bitcoin futures, appear to have gotten cold feet after a brutal beatdown in crypto prices this year.
Daniel H. Gallancy, chief executive officer of New York-based SolidX Partners says that the market had unrealistic expectations that Goldman Sachs or any of its Wall Street peers could suddenly start a Bitcoin trading business.
“That was top-of-the-market-hype thinking.”
Justin Schmidt, who was hired to head its digital-asset business of Goldman Sachs, said that, in many ways, the rampant speculation that has been quelled over the past several months was really healthy for the ecosystem and that he very much looks forward to companies that are actually providing institutional-grade products and services.
He added:
“Custody is part of an overall integrated system where different parts need to work well with each other and safely with each other and you have to be able to trust all the different parts in that chain, from buying something to transferring it to storing it in for the long-term.”
Goldman Sachs remains on the outskirts of the cryptocurrency arena after scrapping early plans to launch a bitcoin trading desk. However, the firm was the first to clear bitcoin futures contracts and has dedicated an entire unit, led by Schmidt, to research the space.
Do not forget that Mike Novogratz (the ex-Goldman Sachs billionaire fund manager and founder of Galaxy Digital) has also given various predictions throughout 2018 which have been scrutinized, particularly as some of these have been less than accurate. Nevertheless, in a recent soundbite, he suggests that it’s realistic to expect Bitcoin to reach $20,000 next year.
Sonny Singh (CCO of Bitcoin payment service provider Bitpay) is also quoted as saying, in line with Mike Novogratz, that a price point of $20,000 is reasonable for Bitcoin in 2019.
Morgan Stanley, which hired Andrew Peel as its head of digital assets earlier in the year, has been technically prepared to offer swaps tracking Bitcoin futures but still hasn’t traded a single contract. However, they did quietly began helping its clients trade bitcoin futures in January, just one month after they began trading on Chicago-based exchanges CBOE and CME.
The company was always about conflicting statements about its perspective on cryptocurrency. CEO James Gorman has at various times said that bitcoin is “by definition speculative” that is nevertheless a “fascinating development” and “more than a fad.”
Morgan Stanley analysts, meanwhile, have argued that the bitcoin price could crash to zero and that cryptocurrency assets are a poor hedge against inflation. The bank has also said that bitcoin’s price movements are reminiscent of the dotcom bubble in 2000.
Citigroup Inc. has not traded any of the products it designed for cryptocurrencies within existing regulatory structures. However, there were rumours in September this year that this U.S. multinational bank is developing a cryptocurrency product to give institutional investors access to crypto markets without owning cryptoassets directly.
Citigroup, which had previously taken a centralized approach to cryptocurrency, was said to use a revamped version of the American Depositary Receipts (ADR), a type of security issued since the 1920s that represents securities of a non-U.S. company, to let investors indirectly trade crypto. The end product should be known as a Digital Asset Receipt (DAR).
Crypto-Industry As the Wild Wild West
The cryptocurrency industry has to date been viewed as the “wild wild west”; an analogy that is regularly wheeled out in any new immature financial market sector. Governments and institutions have been looking at the space over the last year and are poising themselves to make big moves, but hesitancy is the dominant force at present until assessment is made on how best to introduce regulation.
With the highs of December 2017 feeling like a lifetime ago, Bitcoin has continually fallen during 2018. If we look at previous trends it takes on average around 67 weeks for Bitcoin to recover and proceed to new all-time highs. Following this logic, Bitcoin would be heading towards $20,000 in the second quarter of 2019. However, this is highly optimistic and whilst such highs should be reached again in the future, this short time frame isn’t realistic given the hesitancy that will exist from a bruised investor base after this year.
We already wrote how Intercontinental Exchange Inc., owner of the New York Stock Exchange, said in August it had created a suite of services to enable consumers and institutions to buy, sell, store and spend digital assets. Meanwhile, Fidelity Investments said in October it’s preparing a new business to manage digital assets for hedge funds, family offices and trading firms. However, now it seems that we’ll have to wait some more for Bakkt to get its Bitcoin futures contract approved. A new report claims that the CFTC’s decision-making process has been progressing slow regarding Bakkt’s Bitcoin futures contract.
Also, it’s important to note that ETF proposal was first submitted by VanEck and start-up SolidX, who partnered with the CBOE in early 2018. An ETF would be considered a reputable endorsement of Bitcoin which could bring further interest from institutional investors. So far, however, no such approval has been forthcoming from the SEC. There were a series of major rejections throughout the course of this year, with Gemini (the Winklevoss brothers owned exchange) being the main applicant and one particular day seeing no fewer than nine dismissed in one go. The verdict on SolidX’s proposal is set to be reviewed on the 27th February 2019.
In November, world’s second largest exchange, Nasdaq Inc, said that they were planning an entry into the Bitcoin futures space by the second quarter of 2018. Nasdaq’s Bitcoin futures contracts was to be listed on Nasdaq Futures NFX markets. This should eventually allow individual financial investors from the stocks markets try their hands on Bitcoin trading. However, one of the major differences of Nasdaq’s futures product in comparison to CME and CBOE ones is that it will be based on an index, which forms its prices basing on more than 50 Bitcoin exchanges. Three weeks ago, a new cryptocurrency exchange ErisX confirmed it raised a total of $27.5 million from investors including Fidelity Investments and Nasdaq Ventures.