Wall Street firms to take on Binance, Coinbase, other crypto-native exchanges

Traditional financial firms, including Standard Chartered, Nomura, and Charles Schwab, are busy building or funding new crypto exchange and custody platforms, FT reported on May 31.

These well-known Wall Street firms are betting that fund managers are still interested in trading crypto even after last year’s market downturn and the string of crypto scandals.

The FTX bankruptcy and Terra ecosystem implosion, among others, highlighted the risk of investing through largely unregulated exchanges. But legacy firms believe asset managers prefer dealing with established players over crypto-native exchanges like Binance.

Gautam Chhugani, Senior Analyst of Global Digital Assets at Bernstein, told FT:

“The large, pedigreed, traditional institutional investors definitely prefer dealing with counterparties who they know have been in existence for years and have been regulated in the traditional sense.”

In a survey of 250 asset managers published by EY-Parthenon earlier this month, half of the respondents said they would consider switching from a crypto-native group to a traditional-backed company if they offered the same services. Additionally, 90% of respondents trusted traditional financial groups to act as custodians for their crypto assets.

Traditional firms are trying to build more transparent platforms

The collapse of crypto firms last year and the disclosures on alleged malpractices eroded the trust of crypto investors.

Traditional financial firms are banking on their finance industry expertise, long-standing reputations, and lack of regulatory scrutiny to attract clients. The new wave of legacy-backed crypto platforms will compete with Coinbase and Binance, which also host institutional clients.

But traditional finance firms will compete by building more transparent operations – particularly in separating exchanges from asset custody to avoid conflict of interest and reduce risk.

It was noted that BNY Mellon and Fidelity already operate separate crypto custody divisions, and the Nasdaq is waiting for regulators to greenlight its service.

In addition, Jez Mohideen, CEO of Laser Digital, a crypto trading and VC firm owned by Nomura, said some crypto exchanges were “not providing best execution or best prices.” He added that the involvement of traditional firms in crypto would create “more transparency and more convergence in pricing.”

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