JPMorgan, Goldman is nearing Bitcoin adoption as an asset class


Pressure is mounting on Wall Street banks to accept Bitcoin as a legitimate asset class – and that comes from within, CNBC has learned.

Last month, during a town hall meeting for thousands of JPMorgan Chase dealers and sales reps around the world, Troy Rohrbaugh, Head of Global Markets, acknowledged a question that is increasingly being asked by the bank’s staff: When will they look at Bitcoin?

To answer that question, Rohrbaugh, who signed up for the Zoom call from his New York office on Jan. 18, called in his boss, JPMorgan co-president Daniel Pinto, according to people with knowledge of the meeting.

In a response that took up part of the hour-long call, Pinto signaled that he was open-minded about Bitcoin, said the people who refused to be identified when talking about an internal event. When Pinto was later asked by CNBC to clarify his remarks, he said the company’s decision would depend on whether a critical mass of customers wanted the company to trade bitcoin.

“If over time an asset class develops that is used by various asset managers and investors, we need to be involved,” Pinto said in an interview. “The demand is not there yet, but I’m sure it will be at some point.”

JPMorgan traders aren’t the only crypto traders at major banks. Last week, Goldman Sachs hosted a private forum with Mike Novogratz, the CEO-founder of the crypto company Galaxy Digital, for employees and customers. Novogratz explained his thesis on Bitcoin, Ethereum and other digital assets as well as their macroeconomic background during the 90-minute virtual event.

Wall Street’s newfound openness to cryptocurrency shows that the industry is being forced to grapple with Bitcoin as the recent dizzying rise and increased adoption by institutional investors, corporations and fintech competitors have created fears of being left behind.

Banks, exposed to the highest regulatory scrutiny among financial firms because of the breadth of their operations and vital role in the economy in general, have been largely reluctant to play in the crypto space, preferring to focus on related technologies including blockchain. If one of the six largest US banks opts for Bitcoin, it would be an important stamp of legitimacy for the emerging asset class.

During Bitcoin’s 2017 boom cycle, banks like Goldman flirted with the idea of ​​setting up dedicated crypto trading desks, but ultimately put most of their plans on hold. Bitcoin was born from the wreckage of the global financial crisis less than a decade ago and was considered too speculative and risky for bank customers. When the price of Bitcoin skyrocketed in late 2017, JPMorgan CEO Jamie Dimon labeled Bitcoin a scam that wasn’t going to end well.

By only persisting through 2018 and 2019, lean years known as the crypto winter when Bitcoin traded for less than $ 4,000, it showed its persistence. Then the coronavirus pandemic struck and US-led governments freed trillions of dollars to support markets, businesses and individuals during the crisis.

A new narrative emerged, apparently tailored for this period and adopted by billionaire hedge fund managers like Paul Tudor Jones and Stanley Druckermiller: Bitcoin, whose supply is inherently limited, is a hedge against inflation and the devaluation of the US -Dollars.

Fear of currency devaluation is the main focus of customers asking for bitcoin, according to the head of a major bank’s wealth management business for clients worth at least $ 25 million. The bank is considering bringing together buyers and sellers of Bitcoin for customers, but is exploring how the cryptocurrency can be integrated into their risk management systems.

There’s irony here: in just a few short years, Bitcoin has evolved from an idealistic technology designed to cut out banks and other intermediaries into a store of value primarily used by rich people so that they can stay rich.

BlackRock, Tesla

Now that a steady stream of user news seems to be pushing Bitcoin higher and higher, industry insiders say it is only a matter of time before traditional banks step up.

In particular, JPMorgan’s Pinto cited the move last month by BlackRock, the world’s largest asset manager, to add Bitcoin futures as an eligible investment in two of its funds, as evidence of wider adoption. The regulation of Bitcoin trading is manageable, Pinto said, adding that if it did, verified customers and reputable exchanges, including Coinbase, would be involved in the deal.

This week alone, electric car maker Tesla became the youngest company to plow corporate money into Bitcoin, and payment network Mastercard and custodian BNY Mellon have announced that they will be doing more crypto. With each announcement, the likelihood increases that banks, including JPMorgan and others, will decide to join the party.

Damien Vanderwilt, Co-President of Galaxy Digital, Mike Novogratz, Founder of Galaxy, and Chris Ferraro, Co-President of Galaxy

Source: Galaxy Digital

“For the big banks, the volume of customer inquiries and demands will eventually break the camel’s back,” said Damien Vanderwilt, Galaxy Co-President and Head of Global Markets. “Banks will end up being heavily armed to develop these products from their customers.”

Vanderwilt would know. Prior to joining Galaxy last month, he spent more than two decades at Goldman Sachs, where he led the modernization of the bank’s trading infrastructure, most recently as partner and global director of fixed income execution services.

There were a handful of times during his tenure when his bank was slow to adopt new trading techniques or to recognize emerging trends like quantitative trading, which eventually forced them to catch up, he said.

In order for banks to avoid a similar fate with crypto, Galaxy – which sees itself as a bridge between established financial institutions and digital natives – can help accelerate the development of products for their customers, he said.

Goldman Shackles?

Pointing to upcoming collaborations with traditional banks, Vanderwilt said, “It is possible that Galaxy could help Goldman and other banks meet the same challenges. We are uniquely positioned as the digital asset financial services nexus to do so.”

Speaking of users in the corporate world, Vanderwilt said that many companies have not yet publicly disclosed their Bitcoin investments. “You are going to see a number of releases through 2021, there will be more businesses, annuities, more insurance companies,” he said.

As the price continues to rise, some merchants at major banks are jealously looking at the Bitcoin charts. Bitcoin hit the headlines just two months ago because it breached $ 20,000 for the first time. On Thursday, it traded for more than $ 48,000, according to Coin Metrics.

“In this industry we are always looking for things that make money,” said a trader, who only agreed to be quoted on condition of anonymity. “And there’s this shiny thing that’s so damn fleeting and we’re told we can’t touch it – it’s like the forbidden fruit.”