Announcements have becoming fast and furious about traditional financial firms investing in digital assets or crypto startups; so often, in fact, that blink and you’ll miss’em. Not a day goes by it seems with the news du jur that a major legacy institutional firm is building out an army of 100 to dedicate staff in a secret mission which the Pentagon would be envious of.
Hedge funds and retail-focused products are celebrating major fundraises and traditional banks are leading or planning to lead investment rounds in blockchain firms. A publicly traded company has converted a significant chunk of its balance sheet to Bitcoin, and US regulators have agreed to let banks custody crypto assets – all in just the past two months. My how things have changed since Satoshi Nakamoto laid out his vision post 2008 financial collapse.
These developments are all massive signals to the rest of the financial world. To coin(pardon the pun) a popular phrase from today’s news cycle, is Wall Street “woke now” to the new digital world?
A normally quiet season has seen a historic flurry of activity in the crypto and blockchain space. It’s been a transformational time that’s put the old guard on notice and forced them to turn on a dime (pivot quickly?) from positions they previously held ion the digital asset space. Who knew the suits in the proverbial ivory tower secretly wanted to dress like the crypto community with their sneakers and t shirts emblazoned that “I am Satoshi.”
This about face has led to JP Morgan’s acknowledgement that it will invest $20 million to lead a fundraising round in the blockchain consortium Consensys, a previously unthinkable turn of events when CEO Jamie Dimon was loudly calling Bitcoin “a scam” to anyone who would listen. Also, CommerzVentures, the investment arm of Germany’s CommerzBank, recently announced it invested in the digital asset security startup Curv, which provides the tech used by many crypto asset custodians or exchanges providing custody.
Additionally, it seems each quarter brings Grayscale [which has a number of over the counter (OTC) traded products tied to the price of various crypto assets] to new all-time highs, in terms of assets under management (AUM); and Microstrategy, a billion dollar, publicly traded company, announced last month it had purchased about $250 million in Bitcoin “to hedge inflation.” They are the first known company to make this leap. That news alone may be the seminal moment we in the trenches have been waiting for, a “real” company not allocating to cryptocurrency for speculation but for…an alternative to the old greenback.
All of this was recently bolstered by the Office of the Comptroller of the Currency (OCC), a little-known office that regulates some aspects of banking activity in the U.S., commented in a letter that it would allow all chartered national banks to custody crypto assets. Many pundits saw this as a huge development that would immediately move markets in a major way – but the smart money knows this change will not happen overnight. It will be a while before we have a Wells Fargo custody Bitcoin, or Northern Trust hold a hedge fund’s ETH. And markets responded accordingly, staying mostly flat.
But wait, there’s more!
Legendary hedge fund investors Paul Tudor Jones and Jim Simons have made passionate defenses of Bitcoin and even invested significant sums into the leading cryptocurrency.
Even Goldman Sachs, which famously said at the start of the summer that Bitcoin “is not a suitable asset for investment or an asset class at all” has since u-turned and named a new head of digital assets earlier this month.
The hedge funds Pantera and NYDIG, also recently announced they have pulled in nearly $175 million and $190 million, respectively. This automatically places them in the top one percent of all crypto hedge funds.
What’s the point?
Sentiment is clearly swinging in favor of digital and crypto assets, and many people formerly opposed to it (looking at you Jamie Dimon) appear to have changed their minds. But make no mistake, this is because sophisticated investors (these firms’ biggest and best clients) are increasingly asking about Bitcoin and Wall Street is scrambling to get up to speed and satiate client demand.
All it takes is one look at the news – between Pantera, NYDIG and Grayscale – serious investors have shown that if traditional financial firms won’t help them allocate to digital assets, they will find other firms that will. It would not be unreasonable to think that Covid-19 has provided a respite for large endowments and foundations to at the very least dedicate research time to an asset class that has been underserved and has lacked credibility, until now.
The clock is ticking, and many firms are still sitting on the bench waiting to come into the game. The big question is, where are we in the game….1st quarter, second period, 4th inning, or coming out of the locker room to end halftime. The great thing about any market is one never knows where a top or bottom is marked, until history looks back and says that was the top or bottom. At the very least, history is being made.
Alex Mascioli Is the Head of Institutional Services at Bequant, a leading crypto & digital-assets prime broker. Coming from the traditional hedge fund space he has been on the institutional side of crypto full-time since 2017 advising crypto funds and institutional investors globally. He also has a very successful YouTube channel pertaining to crypto and can be found on twitter or https://www.alexmascioli.com/