The cryptocurrency environment is rapidly evolving, and Wall Street is watching closely. As the U.S. Federal Reserve moves to reverse some of the tough crypto measures put in place by the Biden administration, other regulatory agencies—the Securities and Exchange Commission, for example—are getting in on the act. This shift benefits large financial corporations. With this change, they’ll be able to move further into the digital asset space, opening new opportunities in a $19 trillion market. Token ATH! is along for the ride to help explain what all of this new stuff means for you.

The Fed's About-Face on Crypto

The recent enforcement actions taken by the Fed are thus the beginning of a more pronounced change in attitude from the Fed towards crypto. Environmentalists have praised the rollback as a victory. Top leaders from the three agencies, including former Administrator O’Donnell, have been equally vocal in calling for reforms. They want to address the arbitrary mass debanking of crypto firms and people with crypto assets, a practice often referred to as “debanking.” Last month, the OCC rescinded a number of interpretive letters, statements and bulletins regarding the appropriate approach for banks in engaging activity related to crypto.

This changing of course comes after push back on earlier regulations. Many criticized them as “Operation Choke Point 2.0” for being overly prohibitive. The SEC has even rescinded an accounting rule that previously forced banks to treat Bitcoin and other tokens as liabilities on their balance sheets. This is a big deal. It shifts the risk of holding and managing crypto assets back on these institutions, making it much more attractive for them.

In 2022 and 2023, the Federal Reserve issued a series of new regulations and guidance aimed at banks engaging in crypto-related activities. These new regulations were aimed directly at crypto-assets and stablecoins. One key guideline from 2023 instructed banks to obtain a "no-objection letter" before engaging in stablecoin-related activities, particularly those involving "dollar tokens." For one, the regulatory environment is getting more friendly. Consequently, those guidelines will soon be rolled back or made less strict, which will invite more banks to join the crypto space.

Wall Street's Stampede into Crypto

This rolling back of guardrails is opening the floodgates for Wall Street titans to fully adopt crypto. With spot Bitcoin ETFs finally coming to fruition, banks are eager to get into the game. They are now clamoring to offer Bitcoin (BTC) and other crypto services to their clients. This huge new demand and the promise of rich returns are making the electric vehicle transition go gangbusters.

Citadel, one of the largest market makers in the world, is getting ready to dive into the digital asset space. Custody services are a vital part of the financial ecosystem. Citi and State Street, two of the world’s largest custodians, are taking the lead in providing these critical services. This infrastructure combined is what allows firms to securely store and manage digital assets on behalf of institutional clients.

This institutional money—the potential tidal wave of it—could be a serious game-changer for the crypto market. With established financial institutions lending their credibility and resources to the space, it could lead to wider adoption and greater stability.

The $19 Trillion Tipping Point

The numbers being thrown around are staggering. A $19 trillion market capitalization for Bitcoin would be a massive increase from its current valuation. According to Pierre Rochard, vice president of research at Riot Platforms, the Bitcoin network finalizing more than $19 trillion worth of BTC transactions in 2024 "decisively proves that Bitcoin is both a store of value and a medium of exchange."

Naturally, it’s not all puppies and rainbows. Lingering concerns about economic uncertainty and possible “crypto contagion” still exist.

  • Increased Adoption: A market of this size would suggest widespread acceptance of Bitcoin, potentially leading to its integration into mainstream financial systems and everyday transactions.
  • Revolutionary Impact: BlackRock's CEO, Larry Fink, sees the potential for a digital "revolution" in finance, with Bitcoin and blockchain technology at the forefront.
  • Comparison to Traditional Assets: A $19 trillion market cap would place Bitcoin alongside traditional assets like silver, signifying its growing importance in the global economy.

Crypto Contagion and Economic Uncertainty

While the Fed's recent moves are encouraging for the crypto industry, it's important to remember that the market is still relatively new and subject to significant risks. Though the potential for profitable investments is high, investors are advised to be cautious and carry out due diligence before investing in a cryptocurrency.

Here's a breakdown of the key risks:

  • Interconnectedness and Correlation: Economic uncertainty can increase the correlation between financial assets, including cryptocurrencies, potentially leading to a "crypto contagion" where problems in one area spread to others.
  • Volatility and Price Fluctuations: Cryptocurrencies are known for their volatility, and economic uncertainty can exacerbate these price swings.
  • Risk Transmission: Certain sectors of the US stock market, such as industries, financials, consumer services, and materials, can transmit shocks to the cryptocurrency market.
  • Geopolitical Tensions: Global events like the Russia-Ukraine conflict and the situation in Israel-Palestine can increase economic uncertainty and negatively impact crypto markets.
  • Economic Policy Uncertainty: Changes and uncertainty in economic policies can also affect cryptocurrency markets.

While the Fed's recent moves are encouraging for the crypto industry, it's important to remember that the market is still relatively new and subject to significant risks. Investors should proceed with caution and do their own research before investing in cryptocurrencies.