Regulation creates a "bear" bottom. How does Wall Street's entry into the market during the "chaos" affect the industry?

As the U.S. Securities and Exchange Commission ( SEC ) took regulatory action against top crypto exchanges such as Binance and Coinbase , and the crypto market was in a sluggish consolidation, several Wall Street giants unexpectedly announced their entry into the cryptocurrency field. BlackRock set off a wave of applications for spot Bitcoin exchange-traded funds (ETFs), and EDX Markets (EDX), an exchange supported by institutions such as Fidelity, was launched in the United States. The institutional narrative has revived a new round of debate about the future of the crypto market. Why did these financial institutions suddenly change their stance on cryptocurrencies? What is the impact on the industry? Is this likely to trigger a new cryptocurrency bull market?

TradFi finds a "good opportunity to enter the market"

At first glance, the agency’s move seems counterintuitive, as the SEC’s increasingly aggressive regulatory crackdown has plunged the crypto industry into a state of uncertainty, and legal action has begun to threaten the business of top exchanges. However, Wall Street’s entry into the crypto market is more of a long-planned “strategic move” than a gamble, driven by a variety of reasons.

First, the growing demand for digital assets cannot be ignored. Cryptocurrencies, once seen as the preserve of tech enthusiasts, have now gained a firm foothold in mainstream consciousness. Bitcoin, in particular, has attracted a new generation of investors seeking non-traditional asset classes, and a spot Bitcoin ETF will provide investors with a way to gain exposure to Bitcoin without having to directly handle the asset.

Catherine Wood, founder and CEO of ARK Invest and a well-known crypto supporter, sees Wall Street's actions as a strategic response to the booming market demand. In an interview with Bloomberg, she pointed out that more and more retail and institutional investors are attracted by the high potential returns in the crypto space. Wood said: "By offering a Bitcoin ETF, traditional institutions are building a barrier-free bridge for these investors to enter the cryptocurrency space."

The second is to compete through differentiated products. Despite volatility, cryptocurrencies show considerable profit potential, which is attractive to both the institutions that offer these products and their clients. By offering a Bitcoin ETF, these institutions can diversify their products, helping them stand out in a competitive market.

While cryptocurrency exchanges are currently under intense regulatory scrutiny in the U.S., many within the financial industry interpret this as a sign of clearer and stricter regulation in the future. Wall Street may be betting on a future for cryptocurrencies in which there is a robust regulatory framework that reduces the risk of noncompliance and provides greater security for investors.

Galaxy Digital CEO Mike Novogratz said in his tweet that institutions are preparing to take full advantage of potential disruption: "In light of recent legal actions against crypto exchanges, traditional finance sees an opportunity to carve out its own space in the crypto market." He said that investors may consider a Bitcoin ETF offered by a familiar big brand to be a safer choice than registering a troubled crypto exchange.

According to public records, the SEC’s record for approving BlackRock ETFs is 575 to 1. In other words, the regulator has approved 575 BlackRock ETFs, rejecting only one in October 2014 when the company sought permission to create actively managed ETFs without daily disclosure of holdings. Bloomberg senior ETF analyst Eric Balchunas said in a recent tweet that this is “another reason why they are so big and they are not kidding.”

In fact, Wall Street has been testing the waters of crypto business for a long time, and centralized cryptocurrency financial companies and some early adopters of traditional companies, including Bank of New York, Fidelity Bank, Bank of America, Mastercard , Paypal and JPMorgan Chase, have been active in this regard. Andreas Antonopoulos, a well-known Bitcoin advocate, believes that BlackRock's entry is a key point. He said in a blog post: "This marks a milestone moment in the relationship between traditional finance and cryptocurrency. Wall Street's participation enhances the legitimacy of cryptocurrency and recognizes the inevitable evolution of global finance."

The most important thing is the timing. With the SEC's crackdown on cryptocurrency exchanges, there may be a vacuum in the crypto market, and traditional financial institutions think this is the best time to fill this vacuum. If exchanges such as Binance and Coinbase face major regulatory hurdles, investors may flock to Bitcoin ETFs as a safer alternative to direct cryptocurrency investment.

“If a large asset manager like BlackRock takes a move like this at a time when crypto regulation is tightening, it means they probably have done enough due diligence and know that the ETF has a good chance of getting approval from regulators , ” Matt Zhang, founder and managing partner of Hivemind, told MarketWatch.

What are the implications for crypto-native participants?

As Binance and Coinbase come under pressure, the involvement of traditional financial institutions such as BlackRock in the cryptocurrency industry could have a variety of effects. On the one hand, it could bring more legitimacy and stability to the industry, attract more mainstream investors, and potentially gain more recognition from regulators. On the other hand, it could intensify competition for existing cryptocurrency companies, potentially driving consolidation and even driving out smaller companies. Gordon Grant, managing director of sales and trading at cryptocurrency broker Genesis Trading, released data showing that "dozens" of top clients increased their investments in Bitcoin after BlackRock filed its documents.

In the worst case scenario, the crypto industry could be taken over by the TradeFi giant, and the SEC forcing Binance to withdraw from the US market would be the last straw for the industry. Since then, the launch of BlackRock's spot Bitcoin ETF has become almost the only relatively simple way for people to invest in BTC, which eliminates many technical complexities as well as regulatory and tax uncertainties. In the end, BlackRock and other companies that have obtained SEC approval to launch spot Bitcoin ETFs will own BTC. Including, WisdomTree, Invesco , and Valkyrie Investments. As a result, the big capital in the United States will actually become a mandatory intermediary between the vast number of investors and Bitcoin. This will make it easier for the US authorities to control the largest decentralized digital asset (i.e. Bitcoin), as well as a considerable portion of the US dollar.

However, the cryptocurrency industry is characterized by innovation and disruption, often led by startups and independent developers. As a result, both new and existing cryptocurrency companies must find ways to effectively compete with traditional institutions. The future of the cryptocurrency industry is likely to be influenced by a variety of complex factors, including technological developments, regulatory changes, market trends, and the actions of various stakeholders.

Will there be a crypto bull run?

Bitcoin rose more than 15% last week, breaking through $30,000 for the first time since April, and it was on track for its best week since March . After a series of closures of major cryptocurrency companies in 2022, which led to losses for investors, the industry has suffered a double blow this year from a loss of investor confidence and increased regulatory scrutiny. The industry sees BlackRock's application as a sign that Wall Street is turning to Bitcoin, and many observers speculate that it could spur a new bull run in the cryptocurrency space. The involvement of major financial institutions provides a degree of legitimacy and credibility to cryptocurrencies, which could attract a new wave of investors, and the increase in liquidity could drive up demand and, in turn, the prices of these digital assets.

But analysts said economic pressures could hamper hopes of a sustained rebound. Bitcoin’s gains slowed towards the end of the week, trading at $30,405 on Monday.

Meltem Demirors, chief strategy officer at CoinShares , warned of the unpredictability of the crypto market. “While Wall Street’s involvement signals a positive shift, it does not necessarily protect the market from potential volatility, and cryptocurrencies, by their very nature, thrive on volatility and unpredictability.”

“Sticky inflation and recession fears remain long-term risks that we must treat with caution,” said Youwei Yang, chief economist at bitcoin miner BTCM.

Usman Ahmad, CEO of Hong Kong cryptocurrency company BC Technology, said: "Uncertainty over the SEC's activities has led to weak price action, and Blackrock coming out with 'support' feels a little different. Nevertheless, there may be further challenges as interest rates continue to rise."