![]() That meant no loans collateralized by Bitcoin or other digital tokens no market making services where banks took on the risk of ensuring that a particular market remained liquid enough for trading and no prime brokerage services, where banks help the trading of hedge funds and other large investors, which also involves taking on risk for every trade.īanks thus ended up offering clients limited products related to crypto, allowing them an entree into this emerging world without running afoul of regulators. bank regulators have also warned banks to stay away from activities that would land cryptocurrencies on their balance sheets. So if banks wanted to put those coins on their balance sheets, they would have to hold at least the equivalent value in cash to offset the risk. Last year, the Basel Committee on Banking Supervision, which helps set capital requirements for big banks around the world, proposed giving digital tokens like Bitcoin and Ether the highest possible risk weighting. When the crypto market was rollicking, Wall Street banks sought ways to participate, but regulators wouldn’t allow it. Grayscale quickly filed a petition challenging the decision. Last Wednesday, the Securities and Exchange Commission denied the request. In October, Grayscale asked regulators for permission to transform the fund into an exchange-traded fund, which would make trading easier and thus align its shares more closely with the price of Bitcoin. Investors struggling to get out drove the fund’s share price well below the price of Bitcoin. This became a problem when the price of Bitcoin began to sink rapidly. Wheatcraft stayed away from Celsius and other firms offering similar interest-bearing accounts, saying she saw red flags.īut the fund’s structure doesn’t allow for new shares to be created or eliminated quickly enough to keep up with changes in investor demand. ![]() Robert said.īeth Wheatcraft, a 35-year-old mother of three in Saginaw, Mich., who uses astrology to guide her investing decisions, said trading in crypto required a “stomach of steel.” Her digital assets are mostly in Bitcoin, Ether and Litecoin - as well as some Dogecoins that she can’t recover because they are stored on a computer with a corrupted hard drive. “Pandora’s box is opened - you can’t close it,” Mr. He still believes that digital assets are the future, but he said some regulation was necessary to protect investors. Before their price plunged, he intended to cash the Bitcoin out to pay down around $30,000 in credit card debt. Robert has two Bitcoin stuck on the Celsius network and is afraid he’ll never see them again. “I couldn’t take my coins out fast enough,” Mr. He had promised his wife that he would take some time off from watching the markets. On the day that Celsius froze withdrawals, Martin Robert, a day trader in Henderson, Nev., was preparing to celebrate his 31st birthday. The fortunes of many small investors also began tanking. The death spiral of the two coins tanked the broader digital asset market. The meltdown began in May when TerraUSD, a cryptocurrency that was supposed to be pegged to the dollar, began to sink, dragged down by the collapse of another currency, Luna, to which it was algorithmically linked. It sat outside the traditional financial system, an alternative space with little regulation and an anything-goes mentality. At its height, the market for digital assets reached $3 trillion - a large number, although no bigger than JPMorgan Chase’s balance sheet. Spurred partly by the frenzy, the cryptocurrency industry blossomed quickly. Sometimes, these investors made investment decisions that weren’t tied to value, egging on one another using online discussion platforms like Reddit. They were bombarded by ads from cryptocurrency start-ups, like apps that promised investors outsize returns on their crypto holdings or funds that gave them exposure to Bitcoin. Many were first-time traders who, stuck at home during the pandemic, also dived into meme stocks like GameStop and AMC Entertainment. Lured by the promise of quick returns, astronomical wealth and an industry that isn’t controlled by the financial establishment, many retail investors bought newly created digital currencies or stakes in funds that held these assets. “I really do worry about the retail investors who had very little funds to invest,” Ms.
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