Wall Street and crypto: A romance

Wall Street and crypto might just hug it out

The financial establishment’s embrace of crypto just got tighter with Circle’s new alliance with America’s oldest bank. The stablecoin company has signed a deal with BNY Mellon which will become the primary custodian of the USD Coin reserves.

It marks an alliance between a 10-year-old crypto pioneer and a historic bank founded in 1784 by Alexander Hamilton. And it underlines why, as crypto continues to expand its reach, it will also have to forge closer ties with Wall Street.

“It’s a significant inflection point,” Logan Allin, founder and managing partner of Fin Venture Capital, said of the Circle-BNY partnership.

• Circle’s USDC, which is pegged to the U.S. dollar, is one of the fastest-growing cryptocurrencies today with more than $52 billion in circulation.
• The company is turning to an established Wall Street institution to “provide assurance about the safekeeping of the reserve assets underlying the USDC stablecoin,” Klaros Group partner Jonah Crane told Protocol. And as USDC grows in circulation, “Circle will need larger partners,” he added.
• Having a reputable partner is also important following a recent controversy over how some stablecoins are not truly backed by cash. Circle CEO Jeremy Allaire said in August that the USDC reserves are made up of cash, cash equivalents and “other high quality investment-grade assets all issued within the United States rather than offshore.”

Crypto is drawing more attention from Wall Street. BNY is one of a growing number of traditional institutions that have expanded into the crypto market.

• BNY last year announced a new business unit focused on digital assets to help clients interested in cryptocurrency. The bank also invested in crypto tech company Fireblocks.
• Other major Wall Street players have made similar moves. Fidelity has been building its own digital assets business, and in February launched a bitcoin exchange-traded product in Europe. JPMorgan Chase recently invested in blockchain analytics company TRM Labs.
• Last month, Goldman Sachs made history with the first over-the-counter crypto options trade by a major U.S. bank. Even there, you saw crypto-Wall Street crossover, since the trade was facilitated by Galaxy Digital Holdings.

Crypto’s path forward is through Wall Street. “Crypto has always been a ‘libertarian’ movement,” Allin said. But it’s impossible for crypto companies to “operate outside of the established financial systems into perpetuity.” Especially if they want to make Wall Street kinds of money.

— Benjamin Pimentel (email | twitter)

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On the money

Verizon is working with Nova Credit to assist U.S. newcomers. The telecommunications giant has partnered with the fintech company to offer new U.S. residents with no credit history access to services.

An SEC commissioner blasted the agency’s crypto approach. Commissioner Hester Peirce, who has been critical of the regulator’s stance on the crypto market, criticized a new staff accounting bulletin which she said underscored the SEC’s “scattershot and inefficient approach to crypto.”

Anchorage was named a Nasdaq core custodian for crypto. The Nasdaq Crypto Index Oversight Committee has added the digital asset custody company to a list of custodians who can provide “investment-grade infrastructure support” for customers who want to build products that track the index.

Adyen expands to embedded finance. The payments technology company introduced new products for fintech companies and marketplaces to offer to their consumers. It’s a significant expansion beyond payments for the Dutch firm.

Overheard

Block CEO Jack Dorsey went to Washington and briefed Democrats in Congress. "We want to build services and don't want to be a Visa or Mastercard. We want to be an open medium for everyone in the world," he said, according to notes obtained by crypto news publication the Block (no relation).

Brian Armstrong’s not happy about the EU Parliament’s crypto rules that passed Thursday, which he said would require Coinbase to report any customer who received 1,000 or more euros from a self-hosted wallet to authorities. It still needs to be passed by the EU Council before becoming law. “The proposal is anti-innovation, anti-privacy, and anti-law enforcement … This eviscerates all of the EU’s work to be a global leader in privacy law and policy. It also disproportionately punishes crypto holders and erodes their individual rights in deeply concerning ways. It's bad policy,” he tweeted.

Ben McKenzie, the actor best known for his role in “The O.C.,” is not a fan of crypto and says it’s ripe for fraud: “It doesn’t do what currencies do. It’s not a reliable store of value, unit of account or medium of exchange.”

The chart

Wall Street hates uncertainty, and Vladimir Putin injected a massive amount of that into an already shaky market when he invaded Ukraine. The IPO market has ground to a virtual standstill this year, data compiled by Renaissance Capital shows.

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