As cryptocurrency prices took off towards the end of last year, banks and institutional investors were keeping their eyes peeled.
Most of the biggest names on Wall Street and in the City have now announced plans to offer their clients access to cryptocurrencies.
Some, however, have opted to lean away from the trend as environmental, social and governance concerns abound.
The value of cryptocurrencies has continued to swing wildly. Bitcoin was at one point close to doubling in value this year, as it reached an all-time high of $64,829. The token has since suffered a series of major falls to leave its 2021 gains at around 30%.
Here’s what we know so far about how the world’s biggest banks are engaging with cryptocurrencies, and who is staying out of the action. These are some of the institutional thoughts.
Goldman’s cryptocurrency trading desk underwent somewhat of a resurrection this year. Having first launched the desk back in 2018, as crypto prices surged well past their previous bubble, it was time for the investment bank to get back in the game.
Helmed in London by the bank’s global head of digital assets Mathew McDermott, the desk is initially dealing CME bitcoin futures and non-deliverable forwards for institutional clients. It also provides clients with regular research and insights into the sector, while Goldman’s strategic investment unit is taking stakes in associated startups.
McDermott told Financial News in March that the bank may consider buying, selling and holding cryptocurrencies itself once regulation permits. His team is working on projects in enterprise blockchain, digital transactions, digital wallets and stablecoins.
However, Goldman is choosing not to develop its own blockchain technology for now, preferring to work with external providers such as those developed by R3 and Consensys instead.
JPMorgan has largely focused on blockchain in its digital asset development over the past year, launching a unit dedicated to the technology in October.
The bank’s Onyx arm, which had been in construction for five years prior to launch, has more than 100 employees. Its two major releases to date include JPM Coin, the bank’s own token, and a blockchain-based interbank payment network called Liink.
As for cryptocurrencies, however, JPMorgan has been more hesitant. While its analysts are bullish on bitcoin compared to the rest of the sector, its chief executive Jamie Dimon has remained relatively quiet on the matter after dismissing bitcoin as a fraud risk four years ago.
The bank is said to be exploring an actively-managed bitcoin fund for its private wealth clients, set to be launched as soon as the summer of 2021. The fund, as reported by Coindesk, would use custody services provided by NYDIG.
JPMorgan also filed a proposal with the US Securities and Exchange Commission to launch a basket of stocks with exposure to cryptocurrencies in March. The basket would include companies such as MicroStrategy and Square, which hold a significant amount of bitcoin in their corporate treasuries.
Though its analysts have previously espoused the benefits of cryptocurrencies, Citigroup is taking a cautious approach to the sector.
The bank’s global head of foreign exchange Itay Tuchman said last month that the bank is exploring offering cryptocurrency trading, custody and financing, but that no final decision had been taken on whether clients would be given access.
“We shouldn’t do anything that’s not safe and sound. We will jump in when we are confident that we can build something that benefits clients and that regulators can support,” Tuchman said in an interview with The Financial Times.
BNY Mellon has a new digital assets unit in the works, with plans to offer an integrated service for clients.
The investment bank said in February that it was developing a client-facing prototype that is “designed to be the industry’s first multi-asset digital custody and administration platform” for cryptocurrencies.
HSBC has been one of the strongest critics of cryptocurrencies in recent months, despite its rivals making strides in the sector.
The bank’s chief executive Noel Quinn said earlier this month that volatility and a lack of transparency among cryptocurrencies is holding HSBC back from entering the space. The bank has no plans to launch a trading desk or offer exposure to clients.
“Given the volatility we are not into bitcoin as an asset class, if our clients want to be there then of course they are, but we are not promoting it as an asset class within our wealth management business,” Quinn told Reuters in a 24 May interview.
However, HSBC has been developing a blockchain-based platform named Digital Vault since early 2020, utilising open-source technology by R3.
The custody platform, which will give investors access to records of securities bought on private markets in real-time, will house more than a third of HSBC’s own eligible assets. A spokesperson for HSBC told Financial News in February that the bank expects to move regular transactions over to the network from the first quarter of 2021, after investing around $5.8bn in technology efforts in 2020.
Barclays is another of the few major banks to come out against cryptocurrencies as an investment, and has said little about the sector since the pricing boom began last year.
In a rare statement published in January, Barclays’ private banking arm said it considered bitcoin to be “almost uninvestable” because it is extreme volatility and provides few diversification benefits for large investors.
The bank said in a 2019 report that it had begun exploring use cases for blockchain, but has yet to reveal any further details.
Though it does not yet offer clients exposure to cryptocurrencies, UBS has been making significant strides in the development of a private stablecoin.
Through an initiative called Fnality, lenders including UBS, Santander and Lloyds Banking Group are developing a utility token to settle cross-border trades. Fnality recently submitted an application to the Bank of England to be considered for access to potential account settlement structures as part of the central bank’s joint consultation on a digital currency with the UK Treasury.
In 2019, UBS announced that it would lead a consortium of lenders to launch a blockchain-based trade-settlement platform called we.trade.
Other users of UBS’ platform include Société Générale, Caixa Bank, HSBC, Santander, UniCredit, Nordea, KBC, Rabobank, and Deutsche Bank, which use we.trade to settle international transactions.
We.trade offers services such as bank payment guarantees and invoice financing, using blockchain to help power transactions between member banks on the platform.
Deutsche Bank does not currently offer crypto-related services to its clients, but that hasn’t stopped its investment and research team from exploring the sector.
The German lender’s chief investment officer Christian Nolting said in April that bitcoin is “here to stay”, but is far from achieving mainstream status as an asset class. Deutsche has advised clients to treat cryptocurrencies “with caution”, adding that its future as an asset that could behave similarly to gold is uncertain while prices remain volatile.
Deutsche research analyst Marion Laboure said last month that the value of bitcoin is “entirely based on wishful thinking”, and had turned from being a trendy investment to a “tacky” one.
Laboure likened the cryptocurrency’s rise to the Tinkerbell Effect — an economic term based on Peter Pan’s assertion that Tinkerbell existed simply because children believed she did.
Standard Chartered is set to lead the way in institutional crypto trading among the major investment banks, announcing plans to develop a crypto exchange earlier this month.
As part of a joint venture with Hong Kong-based BC Group, StanChart will offer UK and European institutional and corporate clients access to bitcoin, ether and other cryptocurrencies via a digital asset brokerage and exchange platform.
“We have a strong conviction that digital assets are here to stay and will be adopted by the institutional market as a highly relevant asset class,” said Alex Manson, head of StanChart’s venture and innovation unit.
Morgan Stanley joined in the cryptocurrency craze in March this year, after plans for three bitcoin-linked funds emerged.
Two of the funds being offered to accredited US investors will be supplied by Galaxy Digital, while the third is an exclusive joint effort from FS Investments and NYDIG. The minimum entry threshold across the three funds ranges from $25,000 to $5m, and requires accounts to be existing clients of Morgan Stanley.
Source: Institutional Thoughts – Emily Nicolle of FNLondon. Follow Hegion on twitter today.