Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Hood podcast,
Speaker 1: and I'm an era in today for Stacy Murray Ishmael.
Speaker 1: It's Tuesday, February. With everything that has gone on in
Speaker 1: crypto over the past year, Wall Street would be excused
Speaker 1: for wanting to take a rain check on digital assets,
Speaker 1: but some big banks and other large financial firms like
Speaker 1: exchanges and asset managers are moving ahead with their plans
Speaker 1: in the space. Initiatives range from launching new cryptocurrency trading platforms,
Speaker 1: offering custody of digital currencies, or focusing on how blockchain
Speaker 1: can be used to issue and trade traditional assets like bonds.
Speaker 1: Big firms with digital asset plans include b and Y, Melon, Goldman, Sachs, Black,
Speaker 1: Croc Fidelity, and c BO, just to name a few.
Speaker 1: Some executives at these firms see recent scandals in crypto
Speaker 1: like the collapse of FTX as a big opportunity to
Speaker 1: capture a new market as it is likely to drive
Speaker 1: more regulation. And if more regulation is coming to digital assets,
Speaker 1: who would be better place to offer services in the
Speaker 1: space than a big regulated financial institution. Here to talk
Speaker 1: more about what Wall Street is thinking, is Bloomberg reporter
Speaker 1: Uhi Yang Hi Hi. Thank you for joining me. I
Speaker 1: guess this is extra special because I'm in New York.
Speaker 1: We never get to actually speak in person, so it's
Speaker 1: a treat. Thanks for having me, and it's glad to
Speaker 1: be able to sit together with your here recording the
Speaker 1: podcast talking about one of our ever favorite topics, which
Speaker 1: is Wall Street and digital assets. I guess I would
Speaker 1: say it was being ironic here joking or would you
Speaker 1: like to talk about other things? So? Do you want
Speaker 1: to give us the lay of the land. What's going
Speaker 1: on with big financial firms and crypto? What did we
Speaker 1: find out when we were reporting about them in the
Speaker 1: past year. We covered a lot about the various dramas
Speaker 1: and events in cryptocurrencies. For the most part, Wall Street
Speaker 1: banks are isolated from the exposure and impact from some
Speaker 1: of the failures in crypto, and that's because banks are
Speaker 1: highly regulated entities and they are very careful in terms
Speaker 1: of being exposed to crypto, serving cryptal clients getting into
Speaker 1: cryptal services. However, despite all that happened in crypto, when
Speaker 1: we talked to the banks, we realized that some of
Speaker 1: the banks are still looking into potential opportunities in cryptocurrencies
Speaker 1: as well as the broader digital assets world, in which
Speaker 1: case they meant that the tokenization form of real world
Speaker 1: assets such as stocks and bonds and effects. So recently
Speaker 1: we wrote a story really summarizing what banks are still
Speaker 1: thinking about when it comes to the issue assets and
Speaker 1: the potential ways that they can get into the world
Speaker 1: now that the industry is being reshaped after the collapse
Speaker 1: of FTX and other players. So I guess one of
Speaker 1: the selling points now that banks or is what at
Speaker 1: least that's what they told us, is that, you know,
Speaker 1: if if the world of cryptal becomes more regulated, then
Speaker 1: they're like well placed to offer those services. And then
Speaker 1: I guess another issue that emerged after the collapse of
Speaker 1: FTX was that sort of brought to light how you
Speaker 1: should be very careful when you're giving someone your money,
Speaker 1: and there are reasons why we want firms that handle
Speaker 1: money to be regulated. So do firms see this actually
Speaker 1: like as a moment of opportunity rather than a moment
Speaker 1: to step back, Yes, precisely. For example, B and Y
Speaker 1: Melon is a custody bank with very long history. It
Speaker 1: was founded by Alexander Hamilton's Yes, and they are seeing
Speaker 1: into crypto as well. They launched their crypto custody product
Speaker 1: and they're able to provide custody for bitcoin, and they
Speaker 1: think that they're well positioned to take advantage of what's
Speaker 1: going on in the crypto world because they are a
Speaker 1: trusted brand, they have hundreds years of history and their
Speaker 1: job is to provide custody and custody. Of course, it's
Speaker 1: a very tricky issue in crypto where you can lose
Speaker 1: your coins because of the failure of your platform. So
Speaker 1: they think that for a bank like being White Melon,
Speaker 1: this is a good timing for them to step in
Speaker 1: and they're not backing off from this commitment despite what
Speaker 1: happened with FTX, which other firms are offering custody, like
Speaker 1: I know Fidelity has had that offering for a while.
Speaker 1: Are they planning to expand that or what what's the
Speaker 1: situation They're like offering more coins or they have a
Speaker 1: big crypto division or digital assets division right right, Fidelity
Speaker 1: is another player in crypto from the traditional financial world.
Speaker 1: They are a crypto custody for Bigorn. I think there's
Speaker 1: plan to get into either and they even talk about
Speaker 1: looking into supporting staking in crypto, and that's something that
Speaker 1: I think most other traditional financial institutions are not able
Speaker 1: to facilitate. Yet they have retail facing product that they
Speaker 1: recently launched, So there are another name that stand out
Speaker 1: for me in terms of how friendly and vocal they
Speaker 1: are about cryptocurrencies. So one of the I guess reasons
Speaker 1: why they see themselves, as you know, in a moment
Speaker 1: of opportunity is that we might expect there to be
Speaker 1: more regulation. But at the same time, I guess regulation
Speaker 1: has been holding them back, right, Like, what's been the
Speaker 1: reason why they haven't really stepped in full force for now?
Speaker 1: Like why you can't buy I don't know, like bit
Speaker 1: going through your chase up, Like what is what is
Speaker 1: what's really holding them back? And why are they themselves
Speaker 1: not holding crypto on their balance sheets? Right right? Well,
Speaker 1: we're still pretty far away from being able to by
Speaker 1: b coin directly from your bank. I don't think that's
Speaker 1: something that's on the horizon anytime soon. Regulations, as you said,
Speaker 1: it's a big reason that these banks are not able
Speaker 1: to move into cryptal folly yet. And even for custody,
Speaker 1: the SEC has the rule that they published fast spring,
Speaker 1: which said that for banks that hold cryptal assets as custody,
Speaker 1: they have to account for it on their balance sheets
Speaker 1: as liabilities. And then, as we know, banks are subject
Speaker 1: to capital requirement rules and that really makes holding coins
Speaker 1: on behalf of others on economical business model for them
Speaker 1: because there will be more capital burden for them to meet.
Speaker 1: So it's not a scalable solution yet because of the
Speaker 1: SEC rule. And then they have other considerations as well.
Speaker 1: Usually when the bank wants to get into cryptal launch
Speaker 1: of crypto related products, there's lots of layers of approvals
Speaker 1: that they have to go through internally, from risk to
Speaker 1: compliance to even board level approval, and then these conversations
Speaker 1: and process can take months, if not years, and that
Speaker 1: as we know, cryptal moves at a much faster pace.
Speaker 1: So it's really one traditional legacy industry trying to catch
Speaker 1: up in crypto but taking a long time to be
Speaker 1: able to do something. If you look at the market now,
Speaker 1: it's it's sort of dreadful. Everybody's laying off, and it's
Speaker 1: not just like crypto laying off. Banks are laying off too,
Speaker 1: So why push ahead now and not maybe wait a
Speaker 1: bit when they get a little bit more regulatory clarity
Speaker 1: for them to be able to push ahead with any
Speaker 1: new technology, new innovation, it is a long drawn out process.
Speaker 1: If they stop the plan now and when the ball
Speaker 1: market returns, they can't really immediately jump on it without
Speaker 1: laying out the groundwork for it. So I think that's
Speaker 1: the reason why that even once banks have to commitment
Speaker 1: and believe that crypto is here to stay, they're not
Speaker 1: going to back out all of a sudden just because
Speaker 1: of market conditions at the moment. Yeah, a lot of
Speaker 1: what we hear is like we have we're thinking about this,
Speaker 1: this in the mid to long term horizon. So and
Speaker 1: in many cases, the things that they're launching today they
Speaker 1: might have been une discussing like four years ago, like
Speaker 1: in the previous winter. So that's that that makes total sense, right,
Speaker 1: Like if they stop now, it might take them two
Speaker 1: years aget approval again and then they miss another another rally.
Speaker 1: So what is the thing that you find most interesting?
Speaker 1: What are you watching in the space, like with the
Speaker 1: world street banks or not just banks, but we we've
Speaker 1: also spoken to exchanges and brokers, and you mentioned Fidelity,
Speaker 1: which is an asset manager, Like, what is the thing
Speaker 1: you're like keeping the pulse on to see whether measure
Speaker 1: whether like activities actually happening, whether you're gonna watch out
Speaker 1: for this year, that's a good question. I think the
Speaker 1: just the general attitude from banks towards cryptocurrencies. We know
Speaker 1: for a long time crypto kind of build itself as
Speaker 1: the industry to disrupt traditional banks, and then banks for
Speaker 1: a long time dismissed crypto because it's such a small
Speaker 1: and niche sector. But I think after the events in
Speaker 1: the past few years, from people that I talked to,
Speaker 1: there's this general consensus that cryptocurrencies is now seen as
Speaker 1: a real as a class, is here to stay, and
Speaker 1: even though it has a lot of risk, banks can
Speaker 1: no longer dismiss them. And therefore banks are trying to
Speaker 1: figure out ways where they can incorporate that into their
Speaker 1: business line if regulatory approvals allowed, or if they can't
Speaker 1: even try to reshape the industry in a way that
Speaker 1: face their existing business needs better. So banks, once they
Speaker 1: get some green light from the regulators, I think they
Speaker 1: would love to be able to partition in some way
Speaker 1: more For so as you know, I've been sort of
Speaker 1: covering this for a long time, and I remember the
Speaker 1: days where you would not be able to say bitcoin
Speaker 1: in the same sentence as a bank they would freak out,
Speaker 1: And now that's very much changed. Like bitcoins and crypto
Speaker 1: still have a lot of scandals, but you know, there's
Speaker 1: a level of nuance where you know, you can't say
Speaker 1: in the name of a big financial herman crypto together
Speaker 1: because they are doing things in this space. The one
Speaker 1: thing that emerged right before banks started like looking at
Speaker 1: crypto itself was like they started paying attention to blocks
Speaker 1: in which is the underlying technology. So can you give
Speaker 1: us like a sense of what's going what's been going
Speaker 1: on there? That's new, you know, as you know, they've
Speaker 1: been trying to use it to streamline back office processes
Speaker 1: like the settlement of securities, but it's not been very successful.
Speaker 1: And still they seem to be quite positive, right right right.
Speaker 1: I think the totalization aspect of it is what interests
Speaker 1: the banks more. When we talk to banks, they're really
Speaker 1: careful even with the language of it. They think cryptal
Speaker 1: and digital assets are two different concepts. Cryptal of course
Speaker 1: means bad coin either and all the other coins that
Speaker 1: are trading on crypto exchanges. But digital assets is more
Speaker 1: than that. It includes the totalization form of traditional assets
Speaker 1: with real assets backed by real assets. We're talking about
Speaker 1: totalized bawns, totalized rippole transactions, for example, and the banks
Speaker 1: that are experimenting in digital assets really think the latter
Speaker 1: part is what's going to bring more promise and also
Speaker 1: a bigger, more scalable market. But as you know, the
Speaker 1: blockchain effort by banks have been in place for many
Speaker 1: years and for now it still feels like an experiments,
Speaker 1: still at early stage. So we're also looking to see
Speaker 1: to what extent banks and actually push forward with these initiatives,
Speaker 1: which at the moment is not bringing a lot of
Speaker 1: profits into their business line yet. Up next, more about
Speaker 1: wall streets crypto plans with Bloomberg reporter Uh Yang will
Speaker 1: be right back. Do you get a sense that you know,
Speaker 1: at the higher level of banks' is obviously you're also
Speaker 1: listening into, like the earnings called these banks to the
Speaker 1: CEOs of banks actually believe in this or do you
Speaker 1: think it's still you know, testing? What is the sense
Speaker 1: you get? Is it a lot of like marketing pr
Speaker 1: fluff or you know, will we one day actually see
Speaker 1: you know, big at scale trading or like settlement of
Speaker 1: securities on chain? And if so, what sense do we
Speaker 1: get from the banks on the timeframe for this. That's
Speaker 1: a good question. Most banks are not particularly vocal about
Speaker 1: their cryptal blockchain efforts during earnings. Call one exception I
Speaker 1: can think of it is really Jamie Diamond, because he's
Speaker 1: such a vocal person on this topic of cryptocurrencies, and
Speaker 1: he has generated a lot of controversy with the statements
Speaker 1: he had. He once called bitcoin a decentralized policy scheme.
Speaker 1: For example, recently it was like pet rocks because you
Speaker 1: just think the whole thing just is going to zero,
Speaker 1: going to zero, and fake Bitcoin self is a is
Speaker 1: a hyped up fraud pet rocking back to that, So
Speaker 1: what do you make then of a black rock and
Speaker 1: other firms they are. But then, of course JP Morgan
Speaker 1: itself is actually a pioneer in terms of pushing for
Speaker 1: tokenization efforts. They have JP morgan Coin. They have this
Speaker 1: product called pat here, which is an inter bank blockchain
Speaker 1: based um token effort of transactions. So these are are
Speaker 1: internal efforts by JP Morgan that's exploring the use of
Speaker 1: blockching and even the possibility to connect with decentralized finite
Speaker 1: in the future or so. I think that shows even
Speaker 1: though the top level leadership at some banks, they might
Speaker 1: have their personal feelings for cryptocurrencies, but there's also the
Speaker 1: other effort towards blockchain and totalization that's that's kind of
Speaker 1: separated from the personal feeling of one leader. Yeah, and
Speaker 1: I think right after FTX, I believe David Solomon, also
Speaker 1: the CEO of Goldman SAX, had a go pet I
Speaker 1: think in the journal talking about blockchain and how they
Speaker 1: distinguished the two. And they, of course they're among the
Speaker 1: banks that have been doing a lot in the space.
Speaker 1: They just recently had an issuance with the European Investment
Speaker 1: Bank of a bond and other European We seted them
Speaker 1: in our peace and you know, it is quite interesting.
Speaker 1: And they have an initial platform to issue regular assets
Speaker 1: that aren't crypto assets on on the blockchain, so it
Speaker 1: will be interesting. But again, as you were mentioning, I'm
Speaker 1: thinking this year, of all the projects that I've been
Speaker 1: that I've been following, it wasn't just the collapse of FTX,
Speaker 1: but we had a big collapse of a blockchain project,
Speaker 1: namely we were discussing it this weekend. I'm meeting that
Speaker 1: of like a s X right the Australian Exchange was
Speaker 1: supposed to move all of their one of their settlement
Speaker 1: platform on on chain or one of their post trade
Speaker 1: platforms on chain, and that was supposed to be like
Speaker 1: the biggest or was the biggest, most high profile blockchain experiment,
Speaker 1: and it collapsed and they spent I think two million
Speaker 1: dollars on it and have decided to scrap it. So
Speaker 1: that was a big indictment um of the space. So
Speaker 1: I guess it kind of remains to be seen if
Speaker 1: they will actually be able to save money from blockchain
Speaker 1: or if they are just spending money on experiments that
Speaker 1: that don't really go anywhere. But as you said, they
Speaker 1: do seem quite bullish, as are the executives who spoke
Speaker 1: to us about their crypto plans. You know, we had
Speaker 1: no more. I mentioned in the story the big Japanese bank,
Speaker 1: they have a big crypto division. They're also quite positive
Speaker 1: about it. So it's it is definitely interesting. It's hard
Speaker 1: not to think about how ironic this is if if
Speaker 1: we if they do get their way, the banks that
Speaker 1: are trying to build like a big business in crypto,
Speaker 1: it would be very much the antithesis of why crypto
Speaker 1: was launched, right, why why Bacon was launched in the
Speaker 1: aftermath of the financial crisis. It was like to have
Speaker 1: a more decentralized, more equitable financial system, and we might
Speaker 1: end up in a in a place where it's actually
Speaker 1: the bank. It's just like another another asset, another of
Speaker 1: the thousands of assets that banks trade. So do you
Speaker 1: get a sense from like the crypto industry that they're
Speaker 1: happy that big banks and big financial firms are coming in,
Speaker 1: because that seems to come in waves to me, Like
Speaker 1: there's moments in which they're like, oh, there there's like
Speaker 1: a contingent of crypto that still doesn't want banks. But
Speaker 1: then there's another contingent of crypto that's like, oh, the
Speaker 1: big institutions are coming. The banks are coming. So this
Speaker 1: means we're in a great business and the price is
Speaker 1: going to go up. Yeah, I think you you captured
Speaker 1: it well. But I think at the moment, crypto needs
Speaker 1: banks more than banks need cryptal. For banks to be
Speaker 1: able to get into crypto, it really helps establish the
Speaker 1: legitimacy of the cryptal industry. And even without banks getting
Speaker 1: into crypto trading or crypto custody, just having banks that
Speaker 1: are able to provide basic depos story services for cryptal
Speaker 1: companies that will be of great health for the industry
Speaker 1: as well. Right now, we have issues in the industry
Speaker 1: where some cryptal exchanges are not able to even provide
Speaker 1: US dollar wire transfer because they're not able to find
Speaker 1: banking partners. One of the bigger issues last week was
Speaker 1: was that you know, there's some some exchanges or crypto
Speaker 1: companies are having troubles with banking, which has been a
Speaker 1: long ongoing issue, but it seems to be making matters
Speaker 1: even worse than crypto now. Yes, and you will only
Speaker 1: become a bigger issue because banks are highly regulated. They're
Speaker 1: very careful with who they can't do business with, and
Speaker 1: the events last year did not help their case in
Speaker 1: signing up cryptal clients for their business. So regardless, banks
Speaker 1: that have a role to play in the industry, and
Speaker 1: whether it's very basic services such as providing a company
Speaker 1: with bank account or higher level more active engagements such
Speaker 1: as providing cryptical today. So it's the topic for us
Speaker 1: to watch for sure. All right, thank you so much
Speaker 1: for joining me. Was it was great to chat about
Speaker 1: these topics. Thanks for having me. That was Bloomberg reporter
Speaker 1: you h Yang. You can find more of her reporting
Speaker 1: on the Bloomberg terminal and on Bloomberg dot com. For more,
Speaker 1: be sure to check out our twice weekly newsletter, Bloomberg Crypto.
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Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Vergolina. Our
Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Farup
Speaker 1: and Sharon Barriro. Our associate producers are Ty Butler and
Speaker 1: Moses on Them. Desta wonder At is our engineer. Original
Speaker 1: music by Leo Sidron. I'm Stacy Maria Shmael. We'll be
Speaker 1: back tomorrow