Mar 24, 2022 - Economy

Big banks no longer able to ignore crypto demand

Illustration of a piggy bank looking up as a crypto coin floats above it

Illustration: Sarah Grillo/Axios

The country’s biggest banks have realized they can no longer ignore cryptocurrencies. 

Why it matters: Wall Street skepticism around bitcoin and other similar assets have — after more than a decade — given way to eagerness and planning. 

Driving the news: Goldman Sachs this week became the first major U.S. bank to make an OTC trade of a crypto option, or a bet on the future price of a crypto asset, the company confirmed to Axios. The transaction was facilitated by Galaxy Digital, an investment management firm.

  • Translation: Goldman took on principal risk in the trade — something that newer crypto native OTC platforms, such as Genesis and Cumberland, have been designed to do specifically.
  • Separately, Morgan Stanley is set to become the first big U.S. bank to offer its wealthiest clients access to funds that hold bitcoin directly

State of play: Despite their still-volatile nature, and the ambiguity with which regulators have treated these digital assets, at least 220 million people around the world are using cryptocurrencies, according to a study.

  • Meanwhile, institutional investors like hedge funds and other money managers are trading so much that their activity makes up more than 40% of all crypto transaction volume globally, according to a recent Chainalysis report.

What they’re saying: While the Goldman trade "likely won’t mean much for the average crypto investor, it's yet another bridge to help institutional traders overcome the various barriers of entry that have have historically plagued the ecosystem," Ali Hassan, a partner at Perceptive Capital, told Axios.

  • In the long run, more access leads to more liquidity, efficient markets and less volatility, he added.

The big picture: There isn’t a single asset manager who isn’t thinking about cryptocurrency as a diversified asset class, Gunjan Kedia, U.S. Bank's vice chair of wealth management, told CNBC in an interview.

  • In total, hedge funds and pensions did ninefold the crypto business in 2021 that they did in 2020, hitting $1.14 trillion, WSJ reports.

Our thought bubble: Regardless of posturing, when an opportunity is this big it would be irresponsible for banks to not try to take advantage.

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