TradFi goes crypto

Gm. Crypto bear markets can often feel like a long, drawn out breakup. Just like your ex responding to your story with a fire emoji, good economic data can convince you to reinvest in something risky. Then the Fed dashes all hopes of reconciliation (or bitcoin $30k).

But just like those post-breakup months are the right time to work on yourself, bear markets are the right time to build. At least that's what some of the biggest names on Wall Street are thinking...let's dive in.

—Vincent

New Crypto Exchange Just Dropped

Three of the world's biggest heavyweight investment companies are backing a new crypto exchange, proving even the most trad of the tradfi are capable of convincing.

The details: Charles Schwab, Fidelity, and Citadel Securities put their weight behind EDX Markets, a new exchange that will be led by former senior Citadel executive Jamil Nazarali. Trading firm Virtu Financial and investment firms Paradigm and Sequoia Capital also backed the new venture. The exchange is set to launch in November.

The exchange aims to keep compliance costs low by only offering the few assets it’s sure aren’t securities, with the goal of making crypto trading as cheap as stock trading, CoinDesk reports. The Wall Street giants are right to be cautious in their offerings: Coinbase is currently embroiled in an SEC investigation over its crypto listings (are they securities? respond Y/N) and staking product, which has crushed its stock.

So how do you make crypto trading less expensive? On EDX Markets, Virtu and other market makers will compete to execute orders, which will in turn push trading fees lower.

• Nazarali illustrated the greater cost of crypto trading vs. stock trading in an interview with CoinDesk. If an investor wanted to put $5,000 into a S&P 500 ETF, the cost of that trade would be a few pennies. Currently, the cost of the same trade in bitcoin is $25.

A change in tone from Wall Street

Citadel’s involvement in EDX illustrates a growing trend—Wall Street CEOs pulling a 180 on crypto.

Last year, Citadel’s billionaire founder Ken Griffin said that crypto was a “jihadist call” against the dollar. But in March of this year, Griffin said that “crypto has been one of the greatest stories in finance over the course [of] the last 15 years.” Griffin’s flip-flop is a reminder that 1) you shouldn’t compare anything to terrorism except terrorism and 2) most of Wall Street now sees crypto as a way to make money—not as a tool for replacing the dollar.

Griffin’s not alone. BlackRock CEO Larry Fink also apparently reversed his stance on crypto when his firm announced a deal with Coinbase to offer crypto trading to the bank’s clients.

These about-faces have come even in a crypto winter because these executives’ star signs are…capitalist. Executives see an opportunity to make money while crypto prices are deflated. Market sentiment comes and goes, but the saying “millionaires are made in bear markets” is forever.

And it seems CEOs are getting better at reading the room. Crypto is more mainstream now than ever before. Nearly 16% of Americans—more than 52 million people—have traded or invested in crypto, according to Pew Research. Around 86% of Americans have at least heard about crypto.

• And if those numbers feel low? In 2015, Pew ran the same survey and found that only 1% of Americans had invested while only 48% of them had heard of bitcoin.

Translation: In 2022, crypto definitely has scale, but it also has room to grow in terms of adoption.

Crypto was a bubble that popped—and that might be okay

It seems the evidence for crypto is more than just circumstantial for Wall Street’s power brokers. CEOs may also be coming around to the notion that crypto has its own boom and bust cycles like other sectors of the economy, and one bust doesn’t mean bitcoin is dead.

In fact, bubbles aren’t always a bad thing, writes economics blogger Noah Smith. While multiple booms and busts don’t necessarily mean something’s a rational financial asset (and not all busts are followed by a boom), it’s safe to say that Wall Street executives might understand that a version of digital gold could be useful—especially in a world where average people see that asset class as a significant part of their portfolio.

And that’s what you need on your crypto radar today. We hope you enjoy the rest of your Sunday and tell us what projects you’re interested in seeing built in this bear market. Tune in on Tuesday for more Coinsider Radar.