Economist | Bit by bit

Cryptocurrencies

Bit by bit

As bitcoin lurches, Wall Street banks plot their way into cryptoland

May 20th 2021 | words 667

CRYPTO BUFFS have had a punishing week. On May 13th Tether, which issues a stablecoin widely used to facilitate bitcoin trading, said that just 2.9% of its $58bn-worth of coins is backed by cash reserves, feeding doubts about its dollar peg. Elon Musk, Teslas boss, tweeted that the electric-car maker would not after all accept payments in bitcoin. Then on May 18th China warned financial firms against servicing cryptocurrencies. The price of bitcoin tumbled to $30,000, less than half its record high in April, before stabilising at around $39,000.

facilitate

facilitate / fsiliteit /

verb [VN]

(formal) to make an action or a process possible or easier

The new trade agreement should facilitate more rapid economic growth.

Structured teaching facilitates learning.

facilitation / fsilitein / noun [U, sing.]

tumble

tumble / tmbl /

verb

to fall rapidly in value or amount

(),:

The price of oil is still tumbling.

As it cratered, bitcoin dragged most other cryptocurrencies with it. Several big crypto exchanges, including Coinbase, experienced lengthy outages. Investors unable to liquidate positions felt trapped; those willing to buy the dip felt cheated. The latest swing might raise doubts about whether crypto markets are liquid or even reliable enough to welcome institutional investors en masse. That is why it is worth looking to Wall Street.

crater

crater / kreit(r) /

verb

to fail or fall suddenly and dramatically

SYN collapse, crash

the deal cratered

cratering stock prices

liquidate

liquidate / likwideit /

verb

1. [V , VN] to close a business and sell everything it owns in order to pay debts

,(,)

2. [VN] (finance ) to sell sth in order to get money

to liquidate assets

3. [VN] (finance ) to pay a debt

,()

4. [VN] to destroy or remove sb / sth that causes problems

SYN annihilate :

The government tried to liquidate the rebel movement and failed.

en masse

adv.

(from French) all together, and usually in large numbers

Americas big banks have been venturing into cryptoland. In March Morgan Stanley became the first to offer wealthy customers access to bitcoin funds. This month Goldman Sachs revived the crypto desk it had mothballed in 2017; Citigroup said it may offer crypto services. BNY Mellon and State Street are vying to administer bitcoin exchange-traded funds, currently under regulatory review in America. JPMorgan Chase, once adamant that it would steer clear unless cryptocurrencies began to be regulated, has hinted that it might start trading operations if the market expands.

mothball

mothball / mbl; NAmE m- /

verb [VN]

[usually passive] to decide not to use or develop sth, for a period of time, especially a piece of equipment or a plan

The original proposal had been mothballed years ago.

SYN shelve

vie

vie / vai /

verb (vying / vaii / , vied, vied) ~ (with sb) (for sth) (formal) to compete strongly with sb in order to obtain or achieve sth

SYN compete :

She was surrounded by men all vying for her attention.

a row of restaurants vying with each other for business

Screaming fans vied to get closer to their idol.

adamant

adamant / dmnt /

adj.

determined not to change your mind or to be persuaded about sth

Eva was adamant that she would not come.

Why are highly regulated banks wandering into the unregulated wilderness of crypto? It helps that watchdogs in America have been setting out what services banks can provide. Last year the Office of the Comptroller of the Currency said they could offer custodial services for crypto assets. The Commodity Futures Trading Commission regards bitcoin and other digital currencies as commodities, enabling banks to trade derivatives linked to them.

custodial

custodial / kstudil; NAmE -stou- /

adj. [usually before noun] (law )

1. involving sending sb to prison

The judge gave him a custodial sentence (= sent him to prison).

2. connected with the right or duty of taking care of sb; having custody

The mother is usually the custodial parent after a divorce.

OPP non-custodial

derivative

derivative / dirivtiv /

noun

a word or thing that has been developed or produced from another word or thing

'Happiness' is a derivative of 'happy'.

* happiness happy

Crack is a highly potent and addictive derivative of cocaine.

The main reason for banks enthusiasm, though, is obsessive interest from some customers. A year ago Itay Tuchman, Citigroups foreign-exchange chief, hardly ever fielded calls on crypto from institutional clients. Now he receives them several times a week, he says. Roman Regelman of BNY Mellon deems the craze an opportunity, but also an imperative. Wealthy clients are pulling money out of private banks, and retail punters out of current accounts, to bet on digital currencies through fintech firms and startups. Many would rather do everything with their banks, which, in turn, hope to reap the rewards in customer fees and data.

punter

punter / pnt(r) /

noun (BrE, informal)

1. a person who buys or uses a particular product or service

SYN customer :

It's important to keep the punters happy.

reap

reap / rip /

verb

1. [VN] to obtain sth, especially sth good, as a direct result of sth that you have done

():

They are now reaping the rewards of all their hard work.

2. [V , VN] to cut and collect a crop, especially wheat , from a field

()

SYN harvest

Perhaps the easiest service to offer is derivatives trading, as Goldman now does, providing clients with exposure to the assets without having to buy them. Then comes custody: the storage, and related book-keeping, of assets on behalf of big investors. This requires investing in technology; the few banks already selling custody subcontract tasks to specialist firms.

But it is the next level of services, where banks hold digital assets on their balance-sheets, either as collateral or by trading in spot markets, that is currently beyond reach. After a day like May 19th, when bitcoin lost nearly a third of its value in a few hours, regulators may ensure it stays that way. Even if banks do not trade directly, says Chris Zuehlke of Cumberland, a Chicago-based firm that helped Goldman execute its first big block trade of crypto futures on May 6th, they could still connect clients to large spot traders, acting as the shopfront but relying on the infrastructure, and balance-sheets, of others.

collateral

collateral / kltrl /

noun [U]

(finance ) property or sth valuable that you promise to give to sb if you cannot pay back money that you borrow

shopfront

shopfront / pfrnt; NAmE p- / (BrE) (NAmE storefront)

noun

the outside of a shop / store that faces the street

Banks insist that most clients expect a rollercoaster ride. But a prolonged rout could still scare off prospective converts and trigger a regulatory crackdown. Wall Street has an unrivalled ability to bring liquidity and distribution muscle to new assets. Anyone wanting to work out the fate of crypto-investing might do well to see what the banks do next.

convert

FINANCE, STOCK MARKET

to exchange one type of currency , share , etc. for another:

They had converted all their cash from pounds into dollars .

Investors have the option of converting bonds into equity

unrivalled

unrivalled / nraivld /

adj. (formal)better or greater than any other

SYN unsurpassed