Big Banks and Bitcoin: Navigating Crypto
By Zoe Diskin, Project Manager
As the financial services landscape evolves, the intersection of traditional banking and cryptocurrency continues to captivate—and to confound—investors, regulators and institutions.
On January 10, 2024, the SEC approved spot bitcoin exchange-traded products.¹ These products allow investors to gain exposure to bitcoin's price movements without directly owning the cryptocurrency and track the actual price of bitcoin in real-time. Until now, investors seeking bitcoin exposure had limited options, such as buying the cryptocurrency directly, or investing in bitcoin-related companies.
Since the SEC’s announcement, two financial giants, Bank of America's Merrill Lynch and Wells Fargo, have announced their decision to offer spot bitcoin exchange-traded funds (ETFs) to their clients.² The price of bitcoin has been on a steady incline spurring demands from investors for regulated and accessible ways to buy shares of the cryptocurrency. Clients can now add bitcoin exposure to their portfolios through Merrill’s and Wells’ brokerage platforms. This allows for clients to diversify without the complexities of digital keys or wallets, streamlining the process and enhancing accessibility.
Following their launch, the ETFs have seen tremendous demand, breaking trading records. The ETFs offered by Merrill Lynch and Wells Fargo are allowing clients access to regulated and transparent investment streams without the volatility associated with direct ownership of the cryptocurrency. This market expansion also means that liquidity is likely to increase and benefit long-term investors and traders.
Merrill Lynch and Wells Fargo aren’t the only financial institutions to get involved with bitcoin ETFs. Several platforms, including Fidelity, Charles Schwab and Robinhood Markets, began offering spot bitcoin ETFs to clients shortly after they launched.³ Fidelity also offers its own spot bitcoin ETF, the Fidelity Wise Origin Bitcoin Fund (FBTC). Morgan Stanley is also reportedly evaluating whether to offer the product to its clients. This signals that spot bitcoin ETFs are likely here to stay. They make up part of a broader trend among major financial institutions of embracing cryptocurrencies as viable investment vehicles.
Big banks and financial institutions like BNY Mellon, Citi Bank, UBS, JP Morgan Chase and Goldman Sachs have been tinkering with cryptocurrency for over two years. These institutions invested hundreds of millions of dollars into various crypto-affiliated technologies, custody firms and companies, demonstrating a growing acceptance of digital assets within traditional finance.
While the overlap between big banks and cryptocurrency continues to grow, regulatory bodies remain vigilant. US banking regulators have cautioned financial institutions about the risks associated with cryptocurrencies, including scams and fraud. There is an ongoing dialogue between banks and regulators to quantify and mitigate the risks cryptocurrencies pose to customers and markets. Interest groups are pushing the SEC to adjust accounting guidance to make it more expensive for US banks to hold digital assets for their customers.4 The SEC is also facing pressure from legislators from both sides of the aisle to repeal the guidance.
With the risks inherent in spot Bitcoin ETFs and any form of cryptocurrency, it is crucial that financial services companies communicate clearly and relay accurate information to clients looking to invest.
MKP communications inc. is a New-York based marketing communications agency specializing in merger/change communications for the financial services industry.
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¹ https://www.sec.gov/news/statement/gensler-statement-spot-bitcoin-011023