Invasion of TradFi: Crypto’s Alternative Status at Risk?

In a concerted effort to capitalize on a weakened industry, TradFi giants such as Blackrock, Citadel, and Deutsche Bank are seizing opportunities in the crypto market this week. The 2021 bull market brought mainstream attention to cryptocurrencies, leading to a shift in perception among skeptics. However, the latecomers now aim to strike when the market is most vulnerable.

The ongoing assault on the crypto industry, including the FTX blow-up, declining crypto-friendly banking, and regulatory actions by SEC Chairman Gary Gensler, has paved the way for a TradFi takeover. After years of dismissing and ridiculing the disruptive potential of cryptocurrencies, established players are now actively seeking entry into the sector. 

The recent Financial Services Committee hearing on The Future of Digital Assets shed light on this trend with the appearance of Prometheum, a seemingly odd choice as the SEC’s poster boy. 

Prometheum’s CEO advocated compliance-oriented measures, despite the company’s focus on a contradictory securities exchange. This suggests the groundwork for introducing TradFi tokens in the future.

Blackrock has filed with the SEC for a Bitcoin ETF, proposing Coinbase as a custodian. WisdomTree and Valkyrie have followed suit with their own ETF applications. After extensive preparation, Citadel has launched its exchange, while even Deutsche Bank has applied for a digital asset license and explored the branding potential of NFTs. 

The involvement of over half of Fortune 100 companies in the crypto space since 2020 further highlights the industry’s appeal, even though it is still considered in its early stages.

Nevertheless, TradFi ‘s dismissive attitude toward cryptocurrencies persists, as seen by its reluctance to engage with crypto native platforms. Yet, the allure of potential profits supersedes these reservations. The recent collaboration between failed hedge funders Zhu and Davies, who launched the CEX OPNX, and ecosystem partner 3AC Ventures, exemplifies the convergence between the traditional and crypto worlds. 

While TradFi embraces the industry, regulatory bodies in the United States are locked in battles over jurisdiction and control, with the Fed now also asserting its interest. Federal Reserve Chair Jerome Powell’s recognition of stablecoins as “a form of money” has increased regulatory oversight, raising concerns about encroaching on crypto’s original goals.

Moreover, TradFi ‘s interest in decentralized finance (DeFi) is growing. Uniswap’s forthcoming v4 update is a potential means to create permission pools for addresses adhering to know-your-customer (KYC) requirements. This trend raises questions about the future of DeFi and whether it will be forced to retreat to a more clandestine environment.

As the crypto industry faces a wave of institutional interest and regulatory interventions, there is growing apprehension that the original principles of decentralization and financial autonomy may be diluted. The industry finds itself at a crossroads, with the intrusion of TradFi and regulators potentially reshaping the future of cryptocurrencies and blockchain technology.

Trevor Holman

Trevor Holman follows crypto industry since 2011. He joined CryptoNewsZ as a news writer and he provides technical analysis pieces and current market data. He is also an avid trader. In his free time, he loves to explore unexplored places.

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