Wall Street's biggest obstacle to cryptocurrency adoption

Wall Street’s biggest obstacle to cryptocurrency adoption

  • Head of DeFi at S&P Global, Chuck Mounts, spoke at the Messari Mainnet conference on Thursday.
  • Mounts says institutional capital will flow into crypto once there is more regulatory clarity.
  • PE giant KKR has just announced that it will place a portion of its fund on the Avalanche blockchain.

In recent years, the Wall Street giants have made progress in offering cryptocurrency and related products to their customers.

In 2021, Morgan Stanley became the first major US bank to offer certain clients exposure to bitcoin funds. In April, BlackRock was among the investors who raised $400 million to support the stablecoin issuer circle. Private equity giant KKR, which manages $471 billion in assets, also announced that the company would place a portion of its fund on Avalanche, a Layer 1 blockchain, earlier this month.

However, traditional financial firms have not historically embraced cryptocurrencies with open arms.

BlackRock CEO Larry Fink said: “Bitcoin shows you how much money laundering is required in the world. That’s it.” He said Just five years ago.

At a congressional hearing on Wednesday, JPMorgan CEO Jamie Dimon comparison Cryptography to Decentralized Ponzi Schemes. However, JPMorgan does allow customers to purchase various cryptocurrencies such as Bitcoin and Ethereum, along with some structured products.

S&P Global Ratings has followed suit with other financial giants who have expressed interest in cryptocurrency. The company announced a decentralized finance, or DeFi, strategy team, and eye Chuck Mounts as Chief DeFi Officer in March.

“Decentralized finance has the potential to redefine financial markets in ways not seen since the early days of fintech and e-commerce,” Elizabeth Mann, chief financial officer at S&P Global Ratings, said in a statement.

Barriers to adoption

At the Messari Mainnet conference, Mount explained what obstacles are holding traditional finance back from increasing investment in the emerging space.

“When I look at the scene at the moment, I think the seeds of coded spring have already been set or are in the process of being laid,” he said at Thursday’s hearing.

The space needs two things to speed up the adoption process: a clear policy framework and simplified risk assessments. In terms of policy, Mount says, these include both clear and educated regulations and legislation in cryptography.

There has to be some “policy clarity” in crypto, per mountain, which “will allow large institutional players and asset allocators to be more confident and comfortable in some kind of dip their toes and start allocating money into this space.”

Mount added that a “significant milestone” would be legislative action for stablecoins, describing it as the “pathway of institutional money into the digital assets and crypto space.”

per Bloomberg reportHowever, the latest draft of legislation from the House Financial Services Committee would impose a two-year ban on algorithmic stablecoins, or “internally secured stablecoins.” In an effort to prevent another TerraUSD, or UST, case like the collapse of a multibillion dollar ecosystem that spread contagion and caused retail investors to empty savings accounts.

Additionally, Mount says a risk assessment would also be helpful.

“Once there is some clarity in the policy, I think there will be a need to look for some of the risk assessment frameworks they are accustomed to, which can integrate with internal risk assessment capabilities and also facilitate their communication with regulators,” he added.

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