More TradFi Groups Reportedly Building Digital Assets Trading Platforms

The majority of Wall Street executives have mostly been repulsive to the idea of exploring digital assets. Still, some traditional finance names like Fidelity have made inroads in the sector, undeterred by the risks and concerns about the industry's future. A few have even furthered their advances by seeking exposure to the major cryptocurrencies. In the latest display of the traditional finance sector embracing the fast-growing niche, a group of Wall Street-backed firms are reportedly working on infrastructure that supports trading.

A May 31 report by Financial Times conveyed that the companies in question are counting on the unblemished reputation of their brands to win the trust of pedigreed institutional investors like fund managers. Institutions are likely to trust familiar brands with roots in the traditional finance sector as opposed to centralized exchange operators with questionable track records.

Wall Street comes round to crypto betting on reputation and financial industry expertise

The report identified Nomura, brokerage firm Charles Schwab and UK bank Standard Chartered, as some of the financial services firms currently involved in the development of exchange and custody platforms that support crypto assets like Bitcoin and Ether. Financial services and investment services firm Charles Schwab is backing EDX Markets – a newly-unveiled digital assets platform. UK banking giant Standard Chartered, on the other hand, has thrown its weight behind Zodia Markets. Last month, Zodia Custody, a subsidiary of Standard Chartered focused on crypto custody, secured $36 million in funding in its series A funding round, with most of the investment coming from SC Ventures, the venture capital arm of Standard Chartered, and Japanese conglomerate SBI Holdings. Several other undisclosed investors also participated in the raise with the fund set to be used to boost the company's global presence, extend its token coverage, and improve its off-exchange settlement services.

While acknowledging that recent collapses of native companies like exchanges and lenders have created an aversion to crypto, the firms remain confident in having a breakthrough. In their view, these unsettling events helped shed light on the risks associated with unregulated businesses hence the need for entities that guarantee the safety of their user's funds – a gap they intend to fill. Some Wall Street firms have already seen success in crypto custodial initiatives.

Last October, BNY Mellon, the world's largest custodian bank, introduced custody services targeting traditional institutional groups interested in holding cryptocurrencies. In January, the lender revealed plans to follow up the same with digital asset custody services for Asia. Nasdaq separately communicated in March plans to launch its crypto custody business in Q2 after sharing the vision for its foray into the digital assets business last September.

Crypto still profitable despite industry-wide turmoil and setbacks

Sources familiar with the infrastructure development plans noted that the platforms will be built along the lines of traditional finance to maintain structural distinctions from established crypto exchanges. This conventional approach includes separating trading and custody units to mitigate risk. The close affiliation and intermingling of Sam Bankman-Fried's empire which included FTX exchange and Alameda Research, served a lesson in that regard. EDX, for instance, deliberately chose to overlook the potential of integrating cloud computing technology into its creation.

Bitcoin and Ethereum YTD performance. Source:TradingView

Notably, the emergence and potential success of the planned digital assets trading platforms will pose competition to the current dominant players like Binance and Coinbase, who already offer exclusive services to institutional clientele. Dethroning these established entities will, however, be an uphill task, given that exchanges are the source of liquidity for trading desks. Interest in crypto assets has been heightened by the impressive returns registered by major cryptocurrencies. Bitcoin and Ether are trading at 62% and 56% in profit year-to-date. This contrasts with mild growth observed in the broad stock market and global equity indices like S&P 500 and Nasdaq Composite.

To learn more about Bitcoin or Ethereum, check out our Investing in Bitcoin and Investing in Ethereum guides.