How will Wall Street’s entry into the market during the regulatory “bear” bottom affect the industry?

How will Wall Street's entrance during the regulatory "bear" market affect the industry?

As the US Securities and Exchange Commission (SEC) takes regulatory action against top cryptocurrency exchanges such as Binance and Coinbase, and the cryptocurrency market stagnates, several Wall Street giants have unexpectedly announced their entry into the cryptocurrency field. BlackRock has sparked a wave of applications for bitcoin exchange-traded funds (ETFs) for spot trading, while institutions such as Fidelity are supporting the launch of the EDX Markets (EDX) exchange in the United States. The return of institutional narratives has sparked a new round of debate about the future of the cryptocurrency market. Why have these financial institutions suddenly changed their stance on cryptocurrencies? What impact will this have on the industry? Could this lead to a new cryptocurrency bull market?

TradFi Finds an “Entrance Opportunity”

At first glance, the move by institutions seems to defy logic, as the SEC’s increasingly aggressive regulatory crackdown has left the cryptocurrency industry in a state of uncertainty, with legal action already threatening the business of top exchanges. However, Wall Street’s entry into the cryptocurrency market is less a gamble than a long-contemplated “strategic move,” driven by a variety of factors.

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Firstly, the growing demand for digital assets cannot be ignored. Cryptocurrencies were once the domain of technology enthusiasts, but they have now firmly established themselves in mainstream consciousness. Bitcoin in particular has attracted a new generation of investors seeking non-traditional asset classes, and a spot bitcoin ETF will provide investors with a way to gain exposure to bitcoin without directly handling the assets.

ARK Invest founder and CEO, and noted cryptocurrency advocate, Catherine Wood, sees Wall Street’s move as a strategic response to the burgeoning market demand. In an interview with Bloomberg, she noted that an increasing number of retail and institutional investors are attracted to the high potential returns of the cryptocurrency sector. Wood said: “By providing a bitcoin ETF, traditional institutions are building a bridge to the world of cryptocurrency for these investors.”

Secondly, there is competition through differentiated products. Despite the volatility, cryptocurrencies still show considerable profit potential, which is attractive to institutions and their clients who offer these products. By offering a bitcoin ETF, these institutions can diversify their products and help them stand out in a fiercely competitive market.

Although the United States is currently conducting strict regulatory reviews of cryptocurrency exchanges, many in the financial industry interpret this as a sign that clearer and stricter regulatory measures will be adopted in the future. Wall Street may be betting on the future of cryptocurrencies, in which there is a sound regulatory framework that can reduce non-compliance risks and provide investors with greater security.

Mike Novogratz, CEO of Galaxy Digital, said in a tweet that institutions are preparing to take full advantage of the potential disruptions: “Given recent legal actions against cryptocurrency exchanges, traditional finance has seen an opportunity to carve out its own space in the cryptocurrency market.” He said that compared to struggling cryptocurrency exchanges, investors may think that Bitcoin ETFs offered by familiar big brands are a safer choice.

According to public records, the Securities and Exchange Commission (SEC) approved 575 BlackRock ETFs, and refused only one ETF in October 2014, when the company sought to allow the creation of actively managed ETFs without disclosing their holdings every day. Bloomberg’s senior ETF analyst Eric Balchunas said in a recent tweet that this is “another reason why the scale is so large and they are not joking.”

In fact, Wall Street has been testing the waters of the cryptocurrency business for a long time. Centralized cryptocurrency finance companies and some early adopters of traditional companies, including New York Bank, Fidelity Bank, Bank of America, Mastercard, BlockingyBlockingl and JPMorgan, have been very active in this regard. Famous Bitcoin advocate Andreas Antonopoulos believes that BlackRock’s entry is a key point. He wrote in a blog post: “This marks a milestone moment in the relationship between traditional finance and cryptocurrency. Wall Street’s participation enhances the legitimacy of cryptocurrencies and acknowledges the inevitable evolution of global finance.”

Timing is most important. With the SEC’s crackdown on cryptocurrency exchanges, the cryptocurrency market may experience a vacuum, and traditional financial institutions believe this is the best time to fill the vacuum. If exchanges such as Binance and Coinbase face significant regulatory obstacles, investors may flock to Bitcoin ETFs as a safer alternative to direct cryptocurrency investments.

Hivemind founder and managing partner Matt Zhang told MarketWatch: “If asset management companies as large as BlackRock take such measures in the context of tightened crypto regulation, it shows that they may have done enough due diligence to know that ETFs have a good chance of being approved by regulators.”

What are the implications for native crypto participants?

As Binance and Coinbase come under pressure, the participation of traditional financial institutions such as BlackRock in the cryptocurrency industry could have a variety of effects. On the one hand, it can bring more legitimacy and stability to the industry, attract more mainstream investors, and possibly gain more recognition from regulators. On the other hand, it could intensify competition among existing cryptocurrency companies, which could lead to consolidation and even the expulsion of smaller companies. Gordon Grant, Managing Director of Sales and Trading at cryptocurrency broker Genesis Trading, said that after BlackRock filed its documents, “dozens” of top clients increased their investment in Bitcoin.

The worst-case scenario is that the cryptocurrency industry may be taken over by TradeFi giants, and the SEC forcing Binance to withdraw from the US market will be the last straw for the industry. After that, the launch of BlackRock’s Bitcoin ETF will almost be the only relatively simple way for people to invest in BTC, eliminating many technical complexities and regulatory and tax uncertainties. Eventually, BlackRock and other companies that are approved by the SEC to launch spot Bitcoin ETFs will own BTC. Including WisdomTree, Invesco, and Valkyrie Investments. As a result, large US capital will actually become a mandatory intermediary between investors and Bitcoin. This will make it easier for US authorities to control the largest decentralized digital asset (i.e., Bitcoin) and a considerable portion of the US dollar.

However, the characteristics of the cryptocurrency industry are innovation and disruption, which are usually led by startups and independent developers. Therefore, new and existing cryptocurrency companies must find ways to effectively compete with traditional institutions. The future of the cryptocurrency industry may be influenced by a variety of complex factors, including technological developments, regulatory changes, market trends, and the actions of various stakeholders.

Will there be a crypto bull market?

Bitcoin rose more than 15% last week, breaking through $30,000 for the first time since April, and it was the best-performing week since March. After a series of bankruptcies in major cryptocurrency companies in 2022, which caused investors to suffer losses, this year the industry has been hit by a double blow of investor confidence loss and regulatory review intensification. The industry regards BlackRock’s application as a sign that Wall Street is turning to Bitcoin, and many observers speculate that this may stimulate a new bull market in the cryptocurrency field. The participation of major financial institutions provides a certain degree of legitimacy and credibility to cryptocurrencies, which may attract a new wave of investors, and the increase in liquidity may push up demand, thereby pushing up the prices of these digital assets.

However, analysts say economic pressures may hinder hopes of a sustained rebound. The rise of Bitcoin slowed down over the weekend and traded at $30,405 on Monday.

Meltem Demirors, Chief Strategy Officer at CoinShares, warned of the unpredictability of the crypto market. “While Wall Street’s participation marks a positive shift, it may not necessarily protect the market from potential volatility. Cryptocurrencies thrive on volatility and unpredictability by their very nature.”

Youwei Yang, Chief Economist at Bitcoin mining company BTCM, said: “Sticky inflation and economic recession concerns remain long-term risks that we must handle with caution.”

Usman Ahmad, CEO of Hong Kong cryptocurrency firm BC Technology, said: “The uncertainty of SEC activity has led to weak price trends, and Blackrock’s ‘support’ feels a bit different. Nevertheless, with interest rates continuing to rise, we may face further challenges.”

Author: BlockingBitpushNews Mary Liu

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