Wall Street banks are entering the cryptocurrency market, but remain cautious in the face of regulatory pressure

As customer demand for cryptocurrency investments grows, more and more investment banks have begun to provide cryptocurrency services. However, facing heavy regulatory pressure, Wall Street banks remain cautious about deploying cryptocurrencies.

Goldman Sachs Chief Executive David Solomon told a congressional hearing earlier this month that the bank is restricted by regulations from acting as a primary trader in cryptocurrencies or owning a majority of them.

Bank of America Corp. has launched a new team dedicated to cryptocurrencies, the latest effort by Wall Street to try to profit from investors’ craze for digital assets.

According to an internal memo from Bank of America to employees, the team, led by Alkesh Shah, will also cover technologies related to digital currencies and will report to Michael Maras, Bank of America's global head of fixed income, currencies and commodities research.

“Cryptocurrencies and digital assets comprise one of the fastest growing emerging technology ecosystems,” Candace Browning, head of global research at Bank of America, said in the memo. “We are uniquely positioned to provide thought leadership with our robust industry research analysis, market-leading global payments platform and blockchain expertise.”

Wall Street banks are looking to expand into the world of cryptocurrencies, with many trying to offer wealth management products or custody services for the asset class. Some, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., have already started offering cryptocurrency futures trading.

Goldman Sachs’ prime brokerage unit is clearing and settling cryptocurrency exchange-traded products (ETPs) for some hedge fund clients in Europe. The bank is currently offering these services to a limited number of clients and has been reviewing the matter internally as it looks to roll out the service to more clients.

JPMorgan Chase & Co. has become the first major bank to expand cryptocurrency trading privileges, and not just to high-net-worth clients. The bank, which has been aggressively growing its $630 billion wealth management business, told wealth management advisers in a memo earlier this week that they can now buy and sell orders for five cryptocurrency products, four from Grayscale and one from Osprey Funds, effective July 19.

Nadine Chakar, vice president and head of global markets at State Street, told The Scoop that State Street is working with clients to develop solutions to help them allocate to Bitcoin and other crypto assets. She noted that despite the recent price plunge in crypto assets, market interest has not waned: "The price depreciation has not affected demand and interest at all. I think we still see a lot of people enthusiastically embracing digital assets, in some cases cryptocurrencies. And every day you see some large hedge fund or some large investor describing their support for digital technology."

Bank of New York Mellon is following in the footsteps of U.S. banking giant State Street Corp. and will provide business support for new bank-grade cryptocurrency trading platform Pure Digital.

The prime brokerage arm of Bank of America has begun clearing and settling cryptocurrency exchange-traded products (ETPs) for European hedge funds. Bank of America has also approved bitcoin futures trading for some clients and is clearing cash-settled contracts. Market demand for products such as crypto ETPs has been increasing. According to Bloomberg data, Goldman Sachs, ICAP, JPMorgan Chase and UBS are all buying 21Shares Polkadot ETPs for their clients.

Citigroup and UBS are still in a state of indecision. Itay Tuchman, head of Citigroup's global foreign exchange business, told the Financial Times that since August last year, the bank has seen a surge in interest in cryptocurrencies among major clients, and Citigroup is considering providing trading, custody and financing services. Tuchman said Citigroup is not in a hurry to make a decision, "When we are confident that we can create products that are beneficial to our customers and that regulators can support, we will enter (the cryptocurrency market)."

UBS said in a report that cryptocurrencies are speculative assets, not currencies, and regulation is just one of its many drawbacks. UBS warned that the recent plunge in cryptocurrencies highlights the volatility and speculation of this relatively new asset class, which is not suitable for inclusion in investors' portfolios, and advised clients to be cautious in crypto speculation.

Behind the entry of Wall Street financial institutions into cryptocurrency services, they all mentioned the growing customer demand. In the future, banks that are hesitant to enter the cryptocurrency field may eventually be forced to respond to the growing customer demand. Cryptocurrency has developed into a force that Wall Street giants cannot ignore.

In the past week, the United States has entered the second quarter financial report disclosure season. We have seen many companies increase their holdings of Bitcoin in various ways. For example, Edge Wealth increased its holdings of more than 50,000 shares of GBTC, an increase of 43.95% compared with the previous period. Rothschild Investment Company has more than doubled its Bitcoin investment exposure, and ARK Fund has bought more than $10 million of GBTC. In addition, New Jersey pension funds have invested $7 million in Bitcoin mining company stocks. These companies are all working hard to increase their holdings of Bitcoin through traditional markets, so the recent rapid rebound of Bitcoin from below 30,000 to around 34,000 is supported by market funds.

Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of America appeared before the Senate Banking Committee as well as the House Financial Services Panel.

"We continue to closely monitor the development of cryptocurrencies, which have emerged as alternative investment products, although their status as currencies and payment mechanisms remains volatile," Wells Fargo CEO Charles Scharf said in a statement.

Author: Amy Liu

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