Wall Street’s Biggest Hurdles to Crypto Adoption

  • Chief DeFi Officer at S&P Global, Chuck Mounts, spoke at the Messari Mainnet conference on Thursday.
  • Mounts says institutional capital will flood into crypto once there’s more regulatory clarity.
  • PE giant KKR just announced that it would put a portion of its fund on the Avalanche blockchain.

 In recent years, Wall Street giants have made progress in offering crypto and its related products to their clients.

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 that raised $400 million to back stablecoin issuer Circle. Private equity giant KKR, which manages $471 billion in assets, also announced that the firm would put a portion of its fund on Avalanche, a layer-1 blockchain, earlier this month.

Traditional financial firms, however, haven’t historically embraced crypto with open arms.

“Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is,” Larry Fink, the CEO of BlackRock, said just five years ago.

In a congressional hearing on Wednesday, JPMorgan CEO Jamie Dimon compared crypto to “decentralized Ponzi schemes.” JPMorgan, however, allows clients to buy various cryptocurrencies like bitcoin and ethereum, along with some structured products.

S&P Global Ratings has followed in line with the other financial giants, who’ve signaled interest in crypto. The firm announced a decentralized finance, or DeFi, strategy team, and appointed Chuck Mounts as its Chief DeFi Officer in March.

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

Roadblocks to adoption

At the Messari Mainnet conference, Mount explained what obstacles are holding traditional financial back from investing further in the nascent space.

“When I look at the landscape right now, I think the seeds of crypto spring have been laid already or are in the process of getting laid,” he said on a Thursday panel.

The space needs a couple of things to accelerate adoption: a clear policy framework and streamlined risk assessments. In terms of policy, Mount says, these include both clear and educated regulation and legislation in crypto. 

There needs to be some “policy clarity” in crypto, per Mount, that “will allow the big institutional players and asset allocators to be more confident and comfortable in kind of dipping their toe in and start to allocate funds into this space.” 

Mount added that an “important marker” will be legislative action for stablecoins, describing it as a “pathway of institutional funds into the digital asset and crypto space.”

Per a Bloomberg report, the latest draft of legislation from the House Financial Services Committee would place a two-year ban on algorithmic stablecoins or “endogenously collateralized stablecoins.” In an effort to prevent another TerraUSD, or UST, situation i.e. the collapse of a multi-billion dollar ecosystem that resulted in widespread contagion  and retail investors with empty savings accounts. 

In addition to that, Mount says risk assessment would also be helpful.

“Once there’s some policy clarity, I think there’s going to be the need of looking for some frameworks of risk assessment that they’re used to, that can both integrate with internal risk assessment capabilities and also facilitate their communication with their regulators,” he added.