- While hedge funds and other large institutional investors with significant latitude in their investment decisions were first to take the plunge, some of the most storied financial institutions are now looking to see how they can get in on a piece of the action.
- Nonetheless, the recent slide in cryptocurrency prices may provide the perfect opportunity for financial institutions to tool up as regulators get ready to lay down more comprehensive measures to govern the sector that has developed a reputation for being the Wild West.
With comprehensive regulation of cryptocurrencies some time away, some of Wall Street’s biggest names are plunging headfirst into the nascent digital asset class and figuring out the rules as they go along.
While hedge funds and other large institutional investors with significant latitude in their investment decisions were first to take the plunge, some of the most storied financial institutions are now looking to see how they can get in on a piece of the action.
Bank of New York Mellon (BNY Mellon) (-1.12%) recently said that digital assets could create a meaningful source of revenue as soon as next year, according to CFO Emily Portnoy.
BNY Mellon is collaborating with Fireblocks, a cryptocurrency custodian and unicorn fintech that has the potential to enable financial institutions to store, move and issue cryptocurrencies.
Although regulatory uncertainty surrounding cryptocurrencies is for now keeping BNY Mellon on the sidelines, there is some optimism clarity could come sooner than expected.
In an interview with Bloomberg, Portnoy said,
“There are proposals in front of the Securities and Exchange Commission that haven’t yet been approved on whether ETFs can actually hold digital assets directly versus futures.”
But Portney believes that regulatory clarity regarding physically-backed bitcoin ETFs could come as soon as the first half of this year.
Although the first U.S. bitcoin-adjacent ETF was launched last year to much fanfare – the Proshares Bitcoin Strategy ETF – flows into the product have declined alongside the fall in cryptocurrency prices in general, following prospects of tighter monetary policy.
The SEC has so far rejected calls to allow a pureplay bitcoin ETF that holds actual bitcoin, alleging that the proposals received so far fail to meet the requirements to prevent fraudulent and manipulative practices.
Nonetheless, the recent slide in cryptocurrency prices may provide the perfect opportunity for financial institutions to tool up as regulators get ready to lay down more comprehensive measures to govern the sector that has developed a reputation for being the Wild West.
Investors ultimately want regulatory clarity and certainty when the make their investments.
Portnoy noted that although digital assets won’t be a meaningful contributor to revenue until next year or 2024, she made clear that her bank was “leading the charge” in innovation in the space.
