TradFi firms wading deeper into crypto waters despite regulatory uncertainty

BlackRock, Deutsche Bank, Citadel Securities among those undeterred by SEC crackdown — and could look to use its muscle to help shape segment

article-image

Sergii Sobolevskyi/Shutterstock modified by Blockworks

share

Despite the Securities and Exchange Commission’s crackdown on prominent participants in the industry, many traditional finance giants remain undeterred in their pursuit of crypto-related opportunities.

Though regulatory clarity will be key for such companies, industry watchers said, financial heavyweights look to utilize their regulatory muscle and large client bases to move deeper into crypto in a bid to help shape the future of finance.

Since the SEC sued Binance and Coinbase, competing exchanges have delisted tokens that the SEC deemed securities, including Robinhood, eToro, and Bakkt.

The SEC kicked off 2023 with a lawsuit against Gemini and Genesis for allegedly mishandling customer funds. It telegraphed its lawsuit against Coinbase by slapping the company with a Wells notice in March.

Despite the SEC’s ramp-up of enforcement actions in the space, certain TradFi firms are staying the course — seemingly viewing the space as a long-term play.

BlackRock, Deutsche Bank, Citadel Securities continue crypto journeys

BlackRock, a fund group with $9 trillion in assets under management, filed with the SEC to create a spot bitcoin ETF last week. 

EDX Markets, a crypto exchange designed for institutional investors, launched on Tuesday with the backing of Citadel Securities, Fidelity Digital Assets and Charles Schwab. Noticeably compliant with the SEC, it only offers four assets on its trading platform: bitcoin (BTC), ether (ETH), litecoin (LTC) and bitcoin cash (BCH). 

Also this week, Deutsche Bank applied to Germany’s financial regulator to provide crypto custody services, joining more crypto-native companies including Berlin-based Finoa and Bitpanda.

Spokespeople for Deutsche Bank and Citadel did not immediately return requests for comment about potential future offerings. BlackRock declined to comment. 

CK Zheng, former head of valuation risk at Credit Suisse and co-founder of crypto hedge fund ZX Squared Capital, said that traditional industry players are increasingly recognizing the enduring presence of bitcoin. He went on to argue that the asset has already entered a new bull market cycle.

Bitcoin’s price is up nearly 16% from seven days ago — leading to a brief breakthrough Wednesday at $30,000. The asset peaked at nearly $70,000 in November 2021.

TradFi confident despite regulatory challenges

But traditional finance players such as BlackRock, Deutsche Bank and the backers of EDX Markets aren’t venturing into crypto on a whim, according to Jeff Feng, co-founder of Sei Labs. 

Feng noted these companies have spent time understanding the long-term benefits of blockchain and digital assets — such as faster and cheaper cross-border transactions, financial inclusivity, and greater transparency. 

Read more: Crypto is not dead: Fortune 500 companies bullish on the space

BlackRock CEO Larry Fink said last year he believes the tokenization of securities is “the next generation for markets” — adding in a March letter that such offerings could drive efficiencies, shorten value chains, and improve cost and access for investors.

Roger Bayston, head of digital assets at Franklin Templeton, said blockchain technology is set to be “transformational” for capital markets. The firm has a mutual fund that utilizes the Stellar and Polygon blockchains and is exploring other ways to utilize such tech.

Others such as Fidelity and State Street have business units dedicated to the crypto space — with the former launching crypto-related ETFs and creating metaverse experiences

“Their movements in this space signify a proactive approach toward innovation, aimed at shaping the future of finance while leveraging their resources and institutional strength to comply with regulatory standards,” Feng told Blockworks.  

He added the finance giants have decades of experience operating in heavily regulated environments and are likely confident in their ability to manage potential regulatory risk.

But as large financial institutions look to move further into the crypto segment “to fill the voids created by the last bust,” he added, regulatory uncertainty in the US remains a hurdle. 

A clear definition of which crypto assets are securities, commodities — or if they constitute as something else — will be key. The moment a regulatory framework is established, TradFi companies will bring financial products and services to crypto “in full force,” Zheng said.

Such intentions set up the opportunity for traditional companies to use their wide institutional client bases to snag opportunities from crypto-native firms, according to industry watchers.

They might also look to partner with or buy promising crypto companies as a way to fast-track crypto-related offerings. These could range from trading platforms to digital asset management and custody solutions.  

“Many of these firms saw that Robinhood was able to disrupt the brokerage industry with zero-commission trading this decade and want to be in a position to benefit from the global adoption of cryptocurrencies,” Feng said.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Research Report Templates (6).png

Research

In recent months, a number of highly accretive developments were implemented across the protocol to improve fee capture, expand product functionality, and ultimately drive value accrual to the RUNE token, with more upgrades on the immediate horizon. These developments include hiking the minimum swap fee parameter to increase revenue, adding a Burn System Income Lever to reduce the RUNE supply, the addition of COSM-WASM smart contracting and IBC to enable an application layer, new chain integrations, and more.

article-image

A repayment plan has officially been approved, nearly two years after FTX went bust

article-image

Coinbase filed an interlocutory appeal in its case against the SEC earlier this year

article-image

FTX “never had the crypto” to make in-kind distributions, witness says at FTX’s confirmation hearing

article-image

Lucid Ventures co-founder Meta said they don’t think Solana is “abnormal” in the VC world, where it’s “standard” for many projects to fail

article-image

Plus, Polymarket hits all-time highs in daily trading volumes

article-image

Bitcoin is now in the second half of its bull market, if the previous ones are anything to go by