WEBVTT - Wall Street Is Looking Bullish On Crypto

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<v Speaker 1>This is Bloomberg Crypto, a daily Bloomberg I Hood podcast,

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<v Speaker 1>and I'm an era in today for Stacy Murray Ishmael.

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<v Speaker 1>It's Tuesday, February. With everything that has gone on in

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<v Speaker 1>crypto over the past year, Wall Street would be excused

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<v Speaker 1>for wanting to take a rain check on digital assets,

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<v Speaker 1>but some big banks and other large financial firms like

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<v Speaker 1>exchanges and asset managers are moving ahead with their plans

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<v Speaker 1>in the space. Initiatives range from launching new cryptocurrency trading platforms,

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<v Speaker 1>offering custody of digital currencies, or focusing on how blockchain

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<v Speaker 1>can be used to issue and trade traditional assets like bonds.

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<v Speaker 1>Big firms with digital asset plans include b and Y, Melon, Goldman, Sachs, Black,

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<v Speaker 1>Croc Fidelity, and c BO, just to name a few.

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<v Speaker 1>Some executives at these firms see recent scandals in crypto

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<v Speaker 1>like the collapse of FTX as a big opportunity to

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<v Speaker 1>capture a new market as it is likely to drive

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<v Speaker 1>more regulation. And if more regulation is coming to digital assets,

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<v Speaker 1>who would be better place to offer services in the

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<v Speaker 1>space than a big regulated financial institution. Here to talk

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<v Speaker 1>more about what Wall Street is thinking, is Bloomberg reporter

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<v Speaker 1>Uhi Yang Hi Hi. Thank you for joining me. I

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<v Speaker 1>guess this is extra special because I'm in New York.

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<v Speaker 1>We never get to actually speak in person, so it's

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<v Speaker 1>a treat. Thanks for having me, and it's glad to

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<v Speaker 1>be able to sit together with your here recording the

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<v Speaker 1>podcast talking about one of our ever favorite topics, which

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<v Speaker 1>is Wall Street and digital assets. I guess I would

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<v Speaker 1>say it was being ironic here joking or would you

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<v Speaker 1>like to talk about other things? So? Do you want

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<v Speaker 1>to give us the lay of the land. What's going

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<v Speaker 1>on with big financial firms and crypto? What did we

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<v Speaker 1>find out when we were reporting about them in the

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<v Speaker 1>past year. We covered a lot about the various dramas

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<v Speaker 1>and events in cryptocurrencies. For the most part, Wall Street

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<v Speaker 1>banks are isolated from the exposure and impact from some

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<v Speaker 1>of the failures in crypto, and that's because banks are

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<v Speaker 1>highly regulated entities and they are very careful in terms

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<v Speaker 1>of being exposed to crypto, serving cryptal clients getting into

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<v Speaker 1>cryptal services. However, despite all that happened in crypto, when

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<v Speaker 1>we talked to the banks, we realized that some of

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<v Speaker 1>the banks are still looking into potential opportunities in cryptocurrencies

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<v Speaker 1>as well as the broader digital assets world, in which

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<v Speaker 1>case they meant that the tokenization form of real world

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<v Speaker 1>assets such as stocks and bonds and effects. So recently

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<v Speaker 1>we wrote a story really summarizing what banks are still

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<v Speaker 1>thinking about when it comes to the issue assets and

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<v Speaker 1>the potential ways that they can get into the world

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<v Speaker 1>now that the industry is being reshaped after the collapse

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<v Speaker 1>of FTX and other players. So I guess one of

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<v Speaker 1>the selling points now that banks or is what at

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<v Speaker 1>least that's what they told us, is that, you know,

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<v Speaker 1>if if the world of cryptal becomes more regulated, then

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<v Speaker 1>they're like well placed to offer those services. And then

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<v Speaker 1>I guess another issue that emerged after the collapse of

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<v Speaker 1>FTX was that sort of brought to light how you

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<v Speaker 1>should be very careful when you're giving someone your money,

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<v Speaker 1>and there are reasons why we want firms that handle

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<v Speaker 1>money to be regulated. So do firms see this actually

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<v Speaker 1>like as a moment of opportunity rather than a moment

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<v Speaker 1>to step back, Yes, precisely. For example, B and Y

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<v Speaker 1>Melon is a custody bank with very long history. It

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<v Speaker 1>was founded by Alexander Hamilton's Yes, and they are seeing

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<v Speaker 1>into crypto as well. They launched their crypto custody product

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<v Speaker 1>and they're able to provide custody for bitcoin, and they

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<v Speaker 1>think that they're well positioned to take advantage of what's

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<v Speaker 1>going on in the crypto world because they are a

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<v Speaker 1>trusted brand, they have hundreds years of history and their

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<v Speaker 1>job is to provide custody and custody. Of course, it's

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<v Speaker 1>a very tricky issue in crypto where you can lose

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<v Speaker 1>your coins because of the failure of your platform. So

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<v Speaker 1>they think that for a bank like being White Melon,

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<v Speaker 1>this is a good timing for them to step in

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<v Speaker 1>and they're not backing off from this commitment despite what

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<v Speaker 1>happened with FTX, which other firms are offering custody, like

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<v Speaker 1>I know Fidelity has had that offering for a while.

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<v Speaker 1>Are they planning to expand that or what what's the

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<v Speaker 1>situation They're like offering more coins or they have a

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<v Speaker 1>big crypto division or digital assets division right right, Fidelity

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<v Speaker 1>is another player in crypto from the traditional financial world.

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<v Speaker 1>They are a crypto custody for Bigorn. I think there's

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<v Speaker 1>plan to get into either and they even talk about

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<v Speaker 1>looking into supporting staking in crypto, and that's something that

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<v Speaker 1>I think most other traditional financial institutions are not able

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<v Speaker 1>to facilitate. Yet they have retail facing product that they

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<v Speaker 1>recently launched, So there are another name that stand out

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<v Speaker 1>for me in terms of how friendly and vocal they

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<v Speaker 1>are about cryptocurrencies. So one of the I guess reasons

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<v Speaker 1>why they see themselves, as you know, in a moment

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<v Speaker 1>of opportunity is that we might expect there to be

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<v Speaker 1>more regulation. But at the same time, I guess regulation

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<v Speaker 1>has been holding them back, right, Like, what's been the

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<v Speaker 1>reason why they haven't really stepped in full force for now?

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<v Speaker 1>Like why you can't buy I don't know, like bit

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<v Speaker 1>going through your chase up, Like what is what is

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<v Speaker 1>what's really holding them back? And why are they themselves

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<v Speaker 1>not holding crypto on their balance sheets? Right right? Well,

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<v Speaker 1>we're still pretty far away from being able to by

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<v Speaker 1>b coin directly from your bank. I don't think that's

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<v Speaker 1>something that's on the horizon anytime soon. Regulations, as you said,

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<v Speaker 1>it's a big reason that these banks are not able

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<v Speaker 1>to move into cryptal folly yet. And even for custody,

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<v Speaker 1>the SEC has the rule that they published fast spring,

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<v Speaker 1>which said that for banks that hold cryptal assets as custody,

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<v Speaker 1>they have to account for it on their balance sheets

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<v Speaker 1>as liabilities. And then, as we know, banks are subject

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<v Speaker 1>to capital requirement rules and that really makes holding coins

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<v Speaker 1>on behalf of others on economical business model for them

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<v Speaker 1>because there will be more capital burden for them to meet.

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<v Speaker 1>So it's not a scalable solution yet because of the

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<v Speaker 1>SEC rule. And then they have other considerations as well.

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<v Speaker 1>Usually when the bank wants to get into cryptal launch

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<v Speaker 1>of crypto related products, there's lots of layers of approvals

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<v Speaker 1>that they have to go through internally, from risk to

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<v Speaker 1>compliance to even board level approval, and then these conversations

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<v Speaker 1>and process can take months, if not years, and that

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<v Speaker 1>as we know, cryptal moves at a much faster pace.

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<v Speaker 1>So it's really one traditional legacy industry trying to catch

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<v Speaker 1>up in crypto but taking a long time to be

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<v Speaker 1>able to do something. If you look at the market now,

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<v Speaker 1>it's it's sort of dreadful. Everybody's laying off, and it's

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<v Speaker 1>not just like crypto laying off. Banks are laying off too,

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<v Speaker 1>So why push ahead now and not maybe wait a

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<v Speaker 1>bit when they get a little bit more regulatory clarity

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<v Speaker 1>for them to be able to push ahead with any

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<v Speaker 1>new technology, new innovation, it is a long drawn out process.

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<v Speaker 1>If they stop the plan now and when the ball

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<v Speaker 1>market returns, they can't really immediately jump on it without

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<v Speaker 1>laying out the groundwork for it. So I think that's

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<v Speaker 1>the reason why that even once banks have to commitment

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<v Speaker 1>and believe that crypto is here to stay, they're not

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<v Speaker 1>going to back out all of a sudden just because

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<v Speaker 1>of market conditions at the moment. Yeah, a lot of

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<v Speaker 1>what we hear is like we have we're thinking about this,

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<v Speaker 1>this in the mid to long term horizon. So and

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<v Speaker 1>in many cases, the things that they're launching today they

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<v Speaker 1>might have been une discussing like four years ago, like

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<v Speaker 1>in the previous winter. So that's that that makes total sense, right,

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<v Speaker 1>Like if they stop now, it might take them two

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<v Speaker 1>years aget approval again and then they miss another another rally.

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<v Speaker 1>So what is the thing that you find most interesting?

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<v Speaker 1>What are you watching in the space, like with the

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<v Speaker 1>world street banks or not just banks, but we we've

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<v Speaker 1>also spoken to exchanges and brokers, and you mentioned Fidelity,

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<v Speaker 1>which is an asset manager, Like, what is the thing

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<v Speaker 1>you're like keeping the pulse on to see whether measure

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<v Speaker 1>whether like activities actually happening, whether you're gonna watch out

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<v Speaker 1>for this year, that's a good question. I think the

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<v Speaker 1>just the general attitude from banks towards cryptocurrencies. We know

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<v Speaker 1>for a long time crypto kind of build itself as

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<v Speaker 1>the industry to disrupt traditional banks, and then banks for

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<v Speaker 1>a long time dismissed crypto because it's such a small

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<v Speaker 1>and niche sector. But I think after the events in

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<v Speaker 1>the past few years, from people that I talked to,

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<v Speaker 1>there's this general consensus that cryptocurrencies is now seen as

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<v Speaker 1>a real as a class, is here to stay, and

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<v Speaker 1>even though it has a lot of risk, banks can

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<v Speaker 1>no longer dismiss them. And therefore banks are trying to

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<v Speaker 1>figure out ways where they can incorporate that into their

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<v Speaker 1>business line if regulatory approvals allowed, or if they can't

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<v Speaker 1>even try to reshape the industry in a way that

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<v Speaker 1>face their existing business needs better. So banks, once they

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<v Speaker 1>get some green light from the regulators, I think they

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<v Speaker 1>would love to be able to partition in some way

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<v Speaker 1>more For so as you know, I've been sort of

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<v Speaker 1>covering this for a long time, and I remember the

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<v Speaker 1>days where you would not be able to say bitcoin

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<v Speaker 1>in the same sentence as a bank they would freak out,

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<v Speaker 1>And now that's very much changed. Like bitcoins and crypto

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<v Speaker 1>still have a lot of scandals, but you know, there's

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<v Speaker 1>a level of nuance where you know, you can't say

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<v Speaker 1>in the name of a big financial herman crypto together

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<v Speaker 1>because they are doing things in this space. The one

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<v Speaker 1>thing that emerged right before banks started like looking at

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<v Speaker 1>crypto itself was like they started paying attention to blocks

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<v Speaker 1>in which is the underlying technology. So can you give

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<v Speaker 1>us like a sense of what's going what's been going

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<v Speaker 1>on there? That's new, you know, as you know, they've

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<v Speaker 1>been trying to use it to streamline back office processes

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<v Speaker 1>like the settlement of securities, but it's not been very successful.

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<v Speaker 1>And still they seem to be quite positive, right right right.

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<v Speaker 1>I think the totalization aspect of it is what interests

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<v Speaker 1>the banks more. When we talk to banks, they're really

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<v Speaker 1>careful even with the language of it. They think cryptal

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<v Speaker 1>and digital assets are two different concepts. Cryptal of course

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<v Speaker 1>means bad coin either and all the other coins that

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<v Speaker 1>are trading on crypto exchanges. But digital assets is more

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<v Speaker 1>than that. It includes the totalization form of traditional assets

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<v Speaker 1>with real assets backed by real assets. We're talking about

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<v Speaker 1>totalized bawns, totalized rippole transactions, for example, and the banks

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<v Speaker 1>that are experimenting in digital assets really think the latter

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<v Speaker 1>part is what's going to bring more promise and also

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<v Speaker 1>a bigger, more scalable market. But as you know, the

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<v Speaker 1>blockchain effort by banks have been in place for many

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<v Speaker 1>years and for now it still feels like an experiments,

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<v Speaker 1>still at early stage. So we're also looking to see

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<v Speaker 1>to what extent banks and actually push forward with these initiatives,

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<v Speaker 1>which at the moment is not bringing a lot of

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<v Speaker 1>profits into their business line yet. Up next, more about

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<v Speaker 1>wall streets crypto plans with Bloomberg reporter Uh Yang will

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<v Speaker 1>be right back. Do you get a sense that you know,

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<v Speaker 1>at the higher level of banks' is obviously you're also

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<v Speaker 1>listening into, like the earnings called these banks to the

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<v Speaker 1>CEOs of banks actually believe in this or do you

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<v Speaker 1>think it's still you know, testing? What is the sense

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<v Speaker 1>you get? Is it a lot of like marketing pr

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<v Speaker 1>fluff or you know, will we one day actually see

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<v Speaker 1>you know, big at scale trading or like settlement of

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<v Speaker 1>securities on chain? And if so, what sense do we

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<v Speaker 1>get from the banks on the timeframe for this. That's

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<v Speaker 1>a good question. Most banks are not particularly vocal about

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<v Speaker 1>their cryptal blockchain efforts during earnings. Call one exception I

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<v Speaker 1>can think of it is really Jamie Diamond, because he's

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<v Speaker 1>such a vocal person on this topic of cryptocurrencies, and

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<v Speaker 1>he has generated a lot of controversy with the statements

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<v Speaker 1>he had. He once called bitcoin a decentralized policy scheme.

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<v Speaker 1>For example, recently it was like pet rocks because you

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<v Speaker 1>just think the whole thing just is going to zero,

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<v Speaker 1>going to zero, and fake Bitcoin self is a is

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<v Speaker 1>a hyped up fraud pet rocking back to that, So

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<v Speaker 1>what do you make then of a black rock and

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<v Speaker 1>other firms they are. But then, of course JP Morgan

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<v Speaker 1>itself is actually a pioneer in terms of pushing for

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<v Speaker 1>tokenization efforts. They have JP morgan Coin. They have this

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<v Speaker 1>product called pat here, which is an inter bank blockchain

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<v Speaker 1>based um token effort of transactions. So these are are

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<v Speaker 1>internal efforts by JP Morgan that's exploring the use of

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<v Speaker 1>blockching and even the possibility to connect with decentralized finite

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<v Speaker 1>in the future or so. I think that shows even

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<v Speaker 1>though the top level leadership at some banks, they might

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<v Speaker 1>have their personal feelings for cryptocurrencies, but there's also the

0:14:10.480 --> 0:14:14.960
<v Speaker 1>other effort towards blockchain and totalization that's that's kind of

0:14:15.000 --> 0:14:18.199
<v Speaker 1>separated from the personal feeling of one leader. Yeah, and

0:14:18.240 --> 0:14:20.880
<v Speaker 1>I think right after FTX, I believe David Solomon, also

0:14:21.120 --> 0:14:23.640
<v Speaker 1>the CEO of Goldman SAX, had a go pet I

0:14:23.640 --> 0:14:26.880
<v Speaker 1>think in the journal talking about blockchain and how they

0:14:26.920 --> 0:14:29.080
<v Speaker 1>distinguished the two. And they, of course they're among the

0:14:29.080 --> 0:14:30.960
<v Speaker 1>banks that have been doing a lot in the space.

0:14:31.080 --> 0:14:34.320
<v Speaker 1>They just recently had an issuance with the European Investment

0:14:34.320 --> 0:14:36.840
<v Speaker 1>Bank of a bond and other European We seted them

0:14:36.840 --> 0:14:39.600
<v Speaker 1>in our peace and you know, it is quite interesting.

0:14:39.640 --> 0:14:43.720
<v Speaker 1>And they have an initial platform to issue regular assets

0:14:43.840 --> 0:14:47.040
<v Speaker 1>that aren't crypto assets on on the blockchain, so it

0:14:47.040 --> 0:14:48.960
<v Speaker 1>will be interesting. But again, as you were mentioning, I'm

0:14:48.960 --> 0:14:50.760
<v Speaker 1>thinking this year, of all the projects that I've been

0:14:50.800 --> 0:14:53.000
<v Speaker 1>that I've been following, it wasn't just the collapse of FTX,

0:14:53.040 --> 0:14:55.200
<v Speaker 1>but we had a big collapse of a blockchain project,

0:14:55.640 --> 0:14:57.920
<v Speaker 1>namely we were discussing it this weekend. I'm meeting that

0:14:58.280 --> 0:15:01.240
<v Speaker 1>of like a s X right the Australian Exchange was

0:15:01.240 --> 0:15:03.920
<v Speaker 1>supposed to move all of their one of their settlement

0:15:04.120 --> 0:15:06.840
<v Speaker 1>platform on on chain or one of their post trade

0:15:07.240 --> 0:15:10.240
<v Speaker 1>platforms on chain, and that was supposed to be like

0:15:10.400 --> 0:15:14.400
<v Speaker 1>the biggest or was the biggest, most high profile blockchain experiment,

0:15:14.600 --> 0:15:17.640
<v Speaker 1>and it collapsed and they spent I think two million

0:15:17.760 --> 0:15:20.680
<v Speaker 1>dollars on it and have decided to scrap it. So

0:15:20.720 --> 0:15:23.360
<v Speaker 1>that was a big indictment um of the space. So

0:15:23.400 --> 0:15:25.240
<v Speaker 1>I guess it kind of remains to be seen if

0:15:25.240 --> 0:15:28.120
<v Speaker 1>they will actually be able to save money from blockchain

0:15:28.560 --> 0:15:32.000
<v Speaker 1>or if they are just spending money on experiments that

0:15:32.000 --> 0:15:34.840
<v Speaker 1>that don't really go anywhere. But as you said, they

0:15:34.920 --> 0:15:38.600
<v Speaker 1>do seem quite bullish, as are the executives who spoke

0:15:38.640 --> 0:15:41.120
<v Speaker 1>to us about their crypto plans. You know, we had

0:15:41.200 --> 0:15:43.720
<v Speaker 1>no more. I mentioned in the story the big Japanese bank,

0:15:43.760 --> 0:15:47.400
<v Speaker 1>they have a big crypto division. They're also quite positive

0:15:47.400 --> 0:15:50.600
<v Speaker 1>about it. So it's it is definitely interesting. It's hard

0:15:50.640 --> 0:15:52.840
<v Speaker 1>not to think about how ironic this is if if

0:15:52.880 --> 0:15:55.080
<v Speaker 1>we if they do get their way, the banks that

0:15:55.120 --> 0:15:57.200
<v Speaker 1>are trying to build like a big business in crypto,

0:15:57.280 --> 0:16:00.000
<v Speaker 1>it would be very much the antithesis of why crypto

0:16:00.080 --> 0:16:02.120
<v Speaker 1>was launched, right, why why Bacon was launched in the

0:16:02.160 --> 0:16:04.920
<v Speaker 1>aftermath of the financial crisis. It was like to have

0:16:05.000 --> 0:16:08.360
<v Speaker 1>a more decentralized, more equitable financial system, and we might

0:16:08.520 --> 0:16:11.080
<v Speaker 1>end up in a in a place where it's actually

0:16:11.080 --> 0:16:13.840
<v Speaker 1>the bank. It's just like another another asset, another of

0:16:13.840 --> 0:16:17.000
<v Speaker 1>the thousands of assets that banks trade. So do you

0:16:17.120 --> 0:16:19.880
<v Speaker 1>get a sense from like the crypto industry that they're

0:16:19.880 --> 0:16:22.520
<v Speaker 1>happy that big banks and big financial firms are coming in,

0:16:22.560 --> 0:16:24.360
<v Speaker 1>because that seems to come in waves to me, Like

0:16:24.400 --> 0:16:27.000
<v Speaker 1>there's moments in which they're like, oh, there there's like

0:16:27.000 --> 0:16:29.400
<v Speaker 1>a contingent of crypto that still doesn't want banks. But

0:16:29.440 --> 0:16:32.120
<v Speaker 1>then there's another contingent of crypto that's like, oh, the

0:16:32.120 --> 0:16:34.240
<v Speaker 1>big institutions are coming. The banks are coming. So this

0:16:34.320 --> 0:16:36.600
<v Speaker 1>means we're in a great business and the price is

0:16:36.600 --> 0:16:39.440
<v Speaker 1>going to go up. Yeah, I think you you captured

0:16:39.520 --> 0:16:42.160
<v Speaker 1>it well. But I think at the moment, crypto needs

0:16:42.560 --> 0:16:45.720
<v Speaker 1>banks more than banks need cryptal. For banks to be

0:16:45.760 --> 0:16:48.800
<v Speaker 1>able to get into crypto, it really helps establish the

0:16:48.880 --> 0:16:53.800
<v Speaker 1>legitimacy of the cryptal industry. And even without banks getting

0:16:53.840 --> 0:16:57.880
<v Speaker 1>into crypto trading or crypto custody, just having banks that

0:16:57.920 --> 0:17:02.280
<v Speaker 1>are able to provide basic depos story services for cryptal

0:17:02.320 --> 0:17:05.320
<v Speaker 1>companies that will be of great health for the industry

0:17:05.359 --> 0:17:08.240
<v Speaker 1>as well. Right now, we have issues in the industry

0:17:08.240 --> 0:17:11.920
<v Speaker 1>where some cryptal exchanges are not able to even provide

0:17:12.000 --> 0:17:15.160
<v Speaker 1>US dollar wire transfer because they're not able to find

0:17:15.200 --> 0:17:18.960
<v Speaker 1>banking partners. One of the bigger issues last week was

0:17:18.960 --> 0:17:21.879
<v Speaker 1>was that you know, there's some some exchanges or crypto

0:17:21.960 --> 0:17:24.080
<v Speaker 1>companies are having troubles with banking, which has been a

0:17:24.119 --> 0:17:28.919
<v Speaker 1>long ongoing issue, but it seems to be making matters

0:17:28.920 --> 0:17:31.520
<v Speaker 1>even worse than crypto now. Yes, and you will only

0:17:31.600 --> 0:17:35.200
<v Speaker 1>become a bigger issue because banks are highly regulated. They're

0:17:35.280 --> 0:17:38.440
<v Speaker 1>very careful with who they can't do business with, and

0:17:38.480 --> 0:17:41.399
<v Speaker 1>the events last year did not help their case in

0:17:41.520 --> 0:17:46.479
<v Speaker 1>signing up cryptal clients for their business. So regardless, banks

0:17:46.520 --> 0:17:48.960
<v Speaker 1>that have a role to play in the industry, and

0:17:49.040 --> 0:17:54.040
<v Speaker 1>whether it's very basic services such as providing a company

0:17:54.080 --> 0:17:58.680
<v Speaker 1>with bank account or higher level more active engagements such

0:17:58.720 --> 0:18:01.959
<v Speaker 1>as providing cryptical today. So it's the topic for us

0:18:02.000 --> 0:18:04.560
<v Speaker 1>to watch for sure. All right, thank you so much

0:18:05.040 --> 0:18:06.879
<v Speaker 1>for joining me. Was it was great to chat about

0:18:07.000 --> 0:18:11.200
<v Speaker 1>these topics. Thanks for having me. That was Bloomberg reporter

0:18:11.280 --> 0:18:13.720
<v Speaker 1>you h Yang. You can find more of her reporting

0:18:13.760 --> 0:18:17.040
<v Speaker 1>on the Bloomberg terminal and on Bloomberg dot com. For more,

0:18:17.240 --> 0:18:20.359
<v Speaker 1>be sure to check out our twice weekly newsletter, Bloomberg Crypto.

0:18:26.000 --> 0:18:29.119
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0:18:29.200 --> 0:18:32.160
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0:18:45.320 --> 0:18:49.040
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0:18:49.040 --> 0:18:52.879
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0:19:00.760 --> 0:19:05.520
<v Speaker 1>music by Leo Sidron. I'm Stacy Maria Shmael. We'll be

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