Cryptocurrency hopefuls want to believe that Wall Street is just another eager investor, ready to pump money into the growing crypto market and enj🔯oy the same returns that retail traders have seen every time the valu💮e of cryptocurrency has skyrocketed.

However, that projection misses the mark in two ways: first, Wall Street is already neck-deep in the cryptocurrency market; and second, the las𒈔t thing Wall Street intends to do is pump the precarious market with its own capital.

Institutional finance has had many opportunities to make money in the cryptocurrency spa⭕ce. But, as its iꦇnfluence spreads, the cryptocurrency market is transforming into something new. Whether intentionally or as a byproduct of its own flaws, Wall Street could slowly be killing cryptocurrency.

How Could Wall Street Kill Cryptocurrency?

The short answer is yes, through 澳洲幸运5官方开奖结果体彩网:hypothecation. Hypothecation is when a firm that owns equity shares 💫in a company signs those shares away to a lender as collateral. For🐭 example, suppose that Fund A needs $100 million. Broker B agrees to lend Fund A the money in exchange for $100 million worth of the securities that they (Fund A) own.

This type of transaction is referred to as hypothecation. 澳洲幸运5官方开奖结果体彩网:Rehypothecation occurs when Broker B ꦉreuses the assets it g♛ot from Fund A as collateral for its own business operations. In the traditional financial world, this is easy to do for a few reasons. 

The first is that shares are not settled physically. Rather, they are written as certificates of ownership. This makes it easy to pass them along as an 'IOU.' Another reason is that accounting and tax laws allow the same asset to be attributed to different parties (as long as each party records a different amount of debt on their balance sheets).

Though counter-party risk increases significantly with a system like this, it's necessary to grant increased flexibility to banks and brokers.

Why This Matters for Cryptocurrency

Now, consider that although many major 澳洲幸运5官方开奖结果体彩网:cryptocurrencies claim to be alternative an🦹d decentralized payment methods, cross-border payment systems, and used for internal payments on a blockchain, they are actually traded on centralized exchanges more than they are used in everyday life. Cryptocurrency ownership is typically transferred via these exchanges to the blockchain on which the ownership is recorded.

But if a bitcoin were to be rehypothecated six times as brokers and exchanges trade debt and collateral, who gets to claim custodianship in the event that it's needed? Who actually owns the cryptocurrency at the end of the day if multiple parties know the private key (or if no one does)? Consider that cryptocurrency enthusiasts live by this mantra: "If you don't own your private key, you don't own your Bitcoins."

If a broker goes bust and someone needs to pay up, or if a hard fork occurs and someone needs to vote with their 'stake,' it's unclear who actually owns the Bitcoin because, at this point, the collateral chain is so long.

Regardless, this complex model of transient ownership simply doesn't work when it comes to ledger-based assets because it may result in multiple parties expecting remuneration at the same time. The chance of a meltdown in this scenario could be devastating.

How Wall Street Could Make Bitcoin More Stable

In the past, bitcoin was traded exclusively on crypto exchanges, and often on a peeꦗr-to-peer basis. This meant that ♉users could only buy or sell; there was no way to short bitcoin and there were no futures or derivatives based on the cryptocurrency.

All purchases were settled in bitcoin; anyone who bought a coin effectively removed it from the market. Bitcoin's limited supply and deflationary nature made it easy for the price to rise exponentially, as more people bought and fewer people sold because they expected greater returns the longer they held onto the currency.

This naturally contributed to volatility because the market was directly exposed to the forces of supply and demand. Mass fear of missing out could send Bitcoin's price soaring, while the same fear could bring it back down just as quickly.

Wall Street's presence has brought in professional traders who are often better than retail investors at staying disciplined and not panic selling or buying out of fear of missing out. Their large positions have brought a bit of stability to Bitcoin markets—although it remains far more volatile than most assets.

Bitcoin's spikes and swings became relatively less pronounced. High-frequency trading bots also now populate crypto markets, which further reduces their instability. Sophisticated bot programs like those employed by Wall Street can still be extremely profitable in low-volatility environments.

Volatility is part of the reason that Bitcoin is so popular and profitable for the average trader, and without it, the asset becomes harder to trade profita🍸bly for the masses.

Cryptocurrency ETFs

A Bitcoin ETF was a long-time 澳洲幸运5官方开奖结果体彩网:pipedream for crypto enthusiasts for two major reasons: fiཧrst, ETFs are settled in an underlying asset; and second, they're plugged into the traditio✃nal financial market via brokers.

Those bullish on a Bitcoin ETF saw a glimmer of hope in Oct. 2021 when trading began on the NYSE of the ProShares Bitcoin Strategy ETF (BITO). This ETF wasn't directly tied to Bitcoin; instead, it tracked 澳洲幸运5官方开奖结果体彩网:Chicago Mercantile Exchange (CME) Bitcoin futures—the contracts that speculate on the future price of Bitcoin.

With an ETF, such as BITO, Bitcoin became more accessible to retail investors who still don't have the patience or wherewithal to buy Bitcoin on cryptocurrency exchanges or operate a blockchain wallet. Simply put, it's the secret ingredient for mass adoption.

Spot ETF Approvals Further Changed the Market

Markets took a further step in Jan. 2024, with the approval of 11 澳洲幸运5官方开奖结果体彩网:spot Bitcoin ETFs by the SEC. These ETFs own Bitcoin (direct exposure) as opposed to futures. Ether Spot ETFs were the next instruments to be approved for trading—in May 2024 the SEC announced that it had approved NYSE Arca, Nasdaq, and Cboe BZX proposals to list and allow trading of Ether Spot ETFs.

Leading up to the 2024 approval of spot Bitcoin ETFs, such funds that directly own Bitcoin were flat-out denied—including ETFs from early Bitcoin investors Cameron Winklevoss and Tyler Winklevoss. After this long string of denials, the SEC approved spot Bitcoin ETFs from multiple providers.

The Bottom Line

Even though there are avenues for profit in crypto, and the field has enjoyed an increase in popularity since debuting, the future of cr♛yptocurrency's relationship with Wall Street and the great♎er investing public contains many uncertainties.

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