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