Wall Street’s Biggest Obstacles 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 flow into crypto when there is more regulatory clarity.
• PE giant KKR just announced that it would put part of its fund on the Avalanche blockchain.

In recent years, the Wall Street giants have made strides in offering crypto and its related products to their customers.

In 2021, Morgan Stanley became the first major US bank to give 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 part of its fund on Avalanche, a layer-1 blockchain, earlier this month.

However, traditional financial firms have not historically embraced crypto with open arms.

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

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

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

“Decentralized finance has the potential to redefine financial markets in ways not 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 the obstacles holding traditional financials back from further investing in the nascent space.

“Looking at the landscape right now, I think the seeds of the crypto spring have already been laid or are about to be laid,” he said on a Thursday panel.

The space needs a few 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 “political clarity” in crypto, per Mount, that “will allow the big institutional players and asset allocators to be more confident and comfortable in terms of dipping their toe in and starting to allocate funds to this space.”

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

According to a Bloomberg report, the latest bill from the House Financial Services Committee would put a two-year ban on algorithmic stablecoins or “endogenously secured 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 will also be helpful.

“Once there is some policy clarity, I think there will be a need to look for some risk assessment framework that they are used to that can both integrate with internal risk assessment capabilities and also facilitate their communication with their regulators,” he added.