What Crypto Moves Big BDs, Wealth Firms Are Making After FTX Meltdown

What You Need to Know

Here’s what Fidelity, BNY Mellon, BlackRock, J.P. Morgan, State Street, Goldman Sachs and other firms have in the works.

Bank of New York Mellon Corp. traces its history back to 1784 and Alexander Hamilton. But even this venerable institution is finding the lure of the crypto world too strong to resist.

Despite all that’s gone wrong in the industry, with trillions in losses, spectacular bankruptcies, the arrest of Sam Bankman-Fried — the world’s largest custodian bank and other financial giants are hoping to expand in crypto — not shrink.

Cryptocurrencies are a small part of the sprawling digital-asset universe they’re targeting, betting the “crypto winter” will help them do what they couldn’t quite pull off during the now-forgotten crypto spring: make inroads into key parts of the business once and for all.

They’re pushing ahead with projects in blockchain, the digital scaffolding that logs transactions. They’re expanding offerings in tokenization — the issuance of tokens representing real, mainstream assets like bonds.

Another goal is crypto custody, where firms safeguard the assets for clients, even though recent guidance from regulators makes that more costly.

From BNY Mellon — which launched a crypto custody platform one month before Bankman-Fried’s FTX filed for bankruptcy — to mutual-fund giant Fidelity Investments, BlackRock Inc. and Nomura Holdings Inc., members of the Wall Street establishment are planning for a future in digital-assets.

“This will continue to be a focus for us, not so much for crypto, but really the broader opportunity that exists across digital assets and distributed ledger technology,” Robin Vince, chief executive officer at BNY Mellon, said this month on a call discussing earnings. “If anything, the recent events in the crypto market only further highlight the need for trusted regulated providers in the digital-asset space.”

A spokesperson for the company said it believes in the “transformative potential” of blockchain, with its ability to improve accuracy of record-keeping, handling of certain asset types such as real estate and loans, as well as more efficient settlement.

But there are significant hurdles. Regulators, cool on crypto even before FTX’s downfall, will almost certainly become tougher on increased exposure at firms they oversee. And with a downturn looming, banks under pressure to control costs are making job cuts that may scale back their ambitions.

Plunging crypto prices and valuations won’t help rekindle investor demand either, although a rebound in token prices this month may signal the worst of the recent chaos is over. After a brutal 2022, Bitcoin is poised for its best January since 2013.

Here’s what firms have planned:

BlackRock

At BlackRock, teams will continue to explore using digital assets in capital-markets offerings, according to a person familiar with the matter. The world’s largest asset manager is focusing on four areas: stablecoins, permissioned — or private — blockchain, tokenization and crypto assets.

Last year, BlackRock struck a partnership with digital-asset exchange Coinbase Global Inc. that would make it easier for institutional investors to manage and trade Bitcoin. A representative for BlackRock declined to comment on its plans.

Goldman Sachs

Goldman Sachs unveiled its digital assets platform in November, with hopes that clients will use the technology to issue financial securities in the form of digital assets in classes such as real estate.

The firm, along with Banco Santander SA and Societe Generale SA, helped the European Investment Bank issue a digital bond last year using blockchain technology. The settlement took a minute, compared to the several days it would normally take, according to Mathew McDermott, Goldman’s global head of digital assets.

“Using this technology allows us to transform the risk profile of a trade,” he said. “It’s not a pipe dream, there is real value.”

Goldman also has a team of seven traders who deal cash-settled crypto derivatives for clients. The crypto desk, which was relaunched during the 2021 virtual-currency rally, allows clients such as investment funds and trading firms to buy and sell cryptocurrency futures, non-deliverable forwards and cash-settled options, as well as the ability to go short or long on some exchange-traded products via the prime business.

JPMorgan

JPMorgan Chase & Co. CEO Jamie Dimon has long lambasted cryptocurrencies. He recently likened crypto tokens to pet rocks and said Bitcoin was “hyped-up fraud.”

But the bank has been active, spending several years developing blockchain-based systems to run traditional financial transactions. It’s running a number of projects from its blockchain division Onyx, including a distributed ledger-based payment network for banks, called Liink. It also has JPM Coin, a token used for payments, and a platform to tokenize traditional assets.

Fidelity Investments

Fidelity Investments plans to expand the types of assets it offers custody for beyond Bitcoin and Ether, though such plans aren’t imminent. The firm will explore offerings around asset staking — a process that allows token holders to lock up their coins and earn yields in return — and lending, according to Fidelity Digital Assets’ Head of Institutional Chris Tyrer.