You can’t be faulted for not knowing that the Securities and Exchange Commission (SEC) issued a 434-page document outlining regulatory compliance pertaining to custody. It’s the kind of news that tend to fly under the radar in favor of more bombastic headlines. The increases in institutional adoption during bear markets of the past are an example of this.
Bloomberg’s overview of what this means for crypto adoption is a little lengthy, but there are a few key points to single out. If this crypto regulation takes hold, traditional finance firms will be best-positioned to take advantage of it and become institutional custodians. How is cryptocurrency regulation creating a new market for traditional finance firms? Weren’t we told crypto is outdating tradfi?
Well, maybe later. For the time being, big Wall Street firms are coming in as obvious choices for any kind of institutional custody. They have a lot of licensing and paperwork already taken care of. Yet some choice quotes point to challenges, highlighting the general excitement that crypto brings to the table for everyone. Zodia Custody, a London-based native crypto custody firm that recently expanded into Asia, elaborated a little.
Zodia benefits from being owned by Standard Chartered and Northern Trust in terms of getting crypto compliance going. Yet CEO Julian Sawyer said how banks are finding it difficult to make the initial adaptation to crypto because it’s a market that never shuts off.
The Bloomberg analysis mentions FTX collapses and the like, but the note about similar safeguards being implemented by the SEC in 2009 after the global financial crisis is almost hidden. Crypto is undoubtedly getting a more scrutinized treatment here. After all, how long were banks allowed to operate as-was heading up to 2008, and how many more continue with ill practices?
Crypto, on the other hand, is getting the full regulatory squeeze barely a decade into the market. We have previously commented how the only reason the FTX collapse made crypto look less reputable than banks is that crypto isn’t yet “too big to fail”.
How is the blockchain technology adoption accelerating the growth of the cryptocurrency industry? One point we can’t over-emphasize is that any kind of development of the industry during a time of global recession is welcome. Bloomberg does note that Fidelity kept expanding its crypto offering as nearly every crypto firm had to make recessionary downsizing. It’s a decision that could pay off considerably down the line.
As for what impact is traditional finance companies expanding into crypto having on the overall industry, we can use Mastercard as an example of the kind of DeFi-tradfi merger people like to see. The latest partnership by Mastercard further strengthens their crypto card and lessens the amount of entities necessary to make a digital wallet-to-fiat conversion.
We’re told that this will make payments easier on the digital, physical and the metaverse worlds. We are fairly familiar with the first two, but remain fairly unsure on what the latter is. We’ll keep you posted, though. It’s also nice to see that they’ll be using USDC for settlement. The second-largest stablecoin doesn’t exactly need reputation-building, but it’s definitely something after the recent SEC-BUSD affair made some token holders skittish.
We were also told that Binance is next in line after FTX, but the exchange hasn’t gotten the memo yet. It has most recently expanded into Brazil with its crypto Mastercard, where the locals can use 14 tokens for fiat-to-crypto conversion. A big step for Binance, but also for Brazil. The Latin American country has fallen just short of some of the more serious offenders like Turkey when it comes to inflation, and that was before the “new normal” of 1970s inflation everywhere. We’d guess that crypto will be used to avoid the ill results of excessive reliance on government fiat, very much akin to Venezuela, if it isn’t already.