Is Coinbase’s IPO A Wake Up Call To Crypto-Luddite Brokers?

Last week, when Coinbase, America’s most popular bitcoin brokerage, went public it ended the day with a 30% gain, good for an impressive $86 billion market cap. That’s more than double the market cap of venerable BNY Mellon, whose roots go back to 1784.  In some ways the stock offering was a coming out party for bitcoin and cryptocurrency investing, which has long been dismissed by many on Wall Street as fool’s gold.

But Coinbase’s IPO— and bitcoin’s 700% climb in the last 12 months— has finally captured the attention of the $7 trillion-plus wirehouse brokerage industry, which until recently has restricted clients from investing in digital assets. Well-heeled clients are now demanding bitcoin as an investable alternative asset and wealth managers are loathe to be typecast as the luddites of the blockchain age.  

Many of the largest firms on Wall Street have already made pronouncements both publicly and privately about their intentions to start working in the digital asset space. Despite that, none of the major firms, including Morgan Stanley, UBS, Goldman Sachs and BNY Mellon would offer any advisors or executives to speak to Forbes on the record about their approach and intentions with regard to cryptocurrencies.

Last month it was widely reported that Morgan Stanley MS told financial advisors in an internal memo that it would be launching access to three Bitcoin funds. The wirehouse would only allow it for wealthier clients with aggressive risk tolerances and at least $2 million of assets in house.

BNY Mellon first made news on the virtual currency front in February, announcing that it had formed a new team to develop a platform to custody and store digital assets before investing in start-up Fireblocks as a potential partner in that pursuit.


Goldman Sachs GS recently named Mary Rich global head of digital assets within its private wealth division and is looking to offer clients access in the second quarter of this year. That move was prompted by clients going on their own and investing in the new technological advancement without their advisors, according to Bloomberg.

Citi Private Bank CIO David Bailin said that Bitcoin can be part of the “opportunistic side” of portfolios in an interview with Yahoo Finance, adding that the asset will do well based on its outsize level of interest but that he has some fundamental fears.

JPMorgan JPM sent out a report on the risks and opportunities of crypto investment to its private banking clients, who are required to have a minimum balance of $10 million, in March of this year.

Despite the explosion of interest, some investment firms are still wary about getting involved. HSBC is reportedly barring clients from investing in the Coinbase IPO as it maintains a hardline policy of avoiding digital assets. This steadfast avoidance is perhaps owed to fears around anti-money laundering and know-your-customer compliance issues. While Coinbase has stocked up on staff to shore up their practices on that front, HSBC is still reeling from a $1.9 billion fine and ensuing reputational damage from its own 2019 money laundering scandal settlement.

“Clients started asking us about cryptocurrency a couple of years ago, we gradually built up our knowledge base and looked for ways that we could recommend ideas to them to access the space,” says Ted Katramados, director and associate portfolio manager at TAG Associates, a New York-based RIA that manages $8.6 billion. “Where we’ve come out is educating them and recommending actionable ideas.”

Katramados says that his firm is in the “stay rich business, not the get rich business” which has colored their approach to the volatility of cryptocurrency in the past, with the sector far more associated with quick windfalls. However, with growing client interest, the entire financial services industry has been forced to open its mind to how to approach the ascendant world of digital assets.

While there are several strategies for high net worth individuals to access the cryptocurrency market, TAG Associates doesn’t currently recommend for clients to go long on the investment by putting money into specific coins through platforms like recently IPO’d Coinbase or other custodians and brokerages that offer access. The unclear price future makes it difficult for TAG and other advisors to recommend it.

“Frankly, if you ask me where the price of Bitcoin will be a year from now, it could be double, it could be half, probably with equal probability and that’s simply not a game that we’re willing to recommend to our clients,” Katramados adds. “If they want to do it on their own, that’s one thing, but that’s not something that we’d recommend.”

In lieu of that strategy, Katramados and TAG have looked to a “second order or second derivative way to play the crypto space.” That has taken the form of investing in hedge fund strategies around arbitrage. Several of the funds they have chosen along those lines look to profit off of the price difference between the tokens and Bitcoin trusts and futures.

“What we like about this strategy is that the potential still exists to make pretty high returns, yet you don’t have to take the directional risk,” he says. The reason these opportunities exist, according to Katramados, is that this nascent market with lots of retail trading has greater inefficiency than in other more established sectors with more institutional presence. Additionally, the outsize volatility of cryptocurrencies creates more opportunities in arbitrage or similar value strategies.

“When you add all that up you have an opportunity to still make very good returns, with a fraction of the risks that you’d be taking if you just made a directional bet on the price of Bitcoin, for example,” he adds.

Katramados expects to see further adoption and embrace of cryptocurrency across wealth management and has seen that slowly emerge over the past year and a half.

The IPO of Coinbase last week marked a major milestone for the entire digital asset space, according to Katramados, who describes it as “a watershed moment that you can point to, it certainly gives it more credibility for sure. It makes people stand up and take notice and take the space more seriously.”


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Gary Gensler Confirmed As New SEC Chair As Agency Tackles GameStop Saga, ESG Boom And Cryptocurrency

Gary Gensler, the recently approved chair of the Securities and Exchange Commission, will have his hands full as he looks to tackle the key issues of the moment including ESG investing, cryptocurrency, order routing and a fiduciary standard for brokers.

Gensler, who previously served as chair of the Commodity Futures Trading Commission, was approved by the United States Senate on April 14 after a delay . Industry sources say he brings a reputation as an “extremely active regulator” having made it clear in his nomination hearing before the Senate Banking Committee in early March that additional disclosure requirements will be key to his approach to these pressing issues.

Kirkland & Ellis partner Norm Champ says that increased disclosure around ESG investing should be expected following the recent announcement of a Climate and ESG task force at the SEC led by Acting Deputy Director of Enforcement, Kelly Gibson. Champ expects more onerous requirements for companies to disclose how they are handling climate risk as well as diversity. While ESG investing has exploded over the past decade, there has been scrutiny over a lack of oversight of late as its popularity continues to swell.

Gensler will bring experience from his career in academia to bear, coming to the SEC from the Massachusetts Institute of Technology Sloan School of Management where he was a professor of the practice of global economics and management. He also served as co-director of a fintech group at the school as well as a senior advisor to the MIT Media Lab Digital Currency Initiative in between his two stints running financial regulators.

The financial services industry is still looking for a cohesive approach on the categorization of digital assets, which depending on the regulatory body has been considered a commodity, property, currency and a security.


While issues like ESG and cryptocurrency have been building in prominence and were certain to be top of mind for the next chair, the GameStop stock rally earlier this year fueled by Reddit thrusts issues around online brokerages and order flow onto Gensler’s docket.

He will also be the latest head of the SEC to tackle the longstanding search for a clear fiduciary standard for financial advisors and broker-dealers that has been kicked back and forth between the SEC and the Department of Labor for a decade. He will likely work on that issue with Martin Walsh, the former Mayor of Boston who was confirmed as President Joe Biden’s pick for Labor Secretary last month.

The question remains whether he will strengthen the current law of the land, Regulation Best Interest, through an increased disclosure requirement or take on the larger task of reopening the longstanding debate by taking another look at the definition of fiduciary duty.

When Gensler ran the Commodity Futures Trading Commission he was active in rulemaking, issuing more than 40 rules and only having one struck down by the courts. Many of the issues he is set to tackle were already on the radar of the SEC under Acting Chair Allison Herren Lee. The exam division featured ESG, climate risks and Reg. BI compliance in its 2021 priorities released earlier this year. Lee said the commission plans to look at order flow payments in a Feb. 25 response to a letter from Senator Elizabeth Warren.

For now there is not much worry in financial services about the new leadership at the SEC, according to Champ, who spent nearly five years at the SEC serving as director of the Division of Investment Management, deputy director of the Office of Compliance, Inspections and Examinations and the associate regional director for examinations in the regional office located in New York.

If Gensler surprised the industry by proposing the types of regulations championed by the likes of Senator Warren or others progressive lawmakers, it could cause panic, Champ admits. “People are taking a wait-and-see approach,” he says.

That being said, Champ says that he is a contrarian when it comes to the narrative that there will be some seismic shift in SEC presence between the previous and current administrations. 

“Yes, the Trump administration was deregulatory but from an enforcement and examination perspective, the SEC was incredibly active over the last four years. It is really a disservice to the staff to say otherwise,”  Champ adds. “This narrative that there’s going to be some big change in examination and enforcement is way overblown. There will certainly be more rules, but from the policing perspective the SEC has been pretty darn active.”

However, one area where Champ expects to see a large change from the previous regime is the reemergence of the Financial Stability Oversight Council, created in the aftermath of the financial crisis as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, in order to identify and monitor excessive risks in the U.S. financial system. Gensler was active in supporting the council in his time at the CFTC and Champ concedes that the group housed within the Department of Treasury has been “dormant” over the past few years.

His advocacy for a revival of FSOC will be aided by the Consumer Financial Protection Bureau, another agency created by Dodd-Frank that is likely to see a revival under the current administration. President Biden has nominated Rohit Chopra to the post, an acolyte of Senator Warren who helped create the bureau. The head of the CFPB, along with Gensler’s last two federal posts, chairs of the CFTC and SEC, are among the 10 voting members on FSOC.

During his confirmation process, Gensler has not indicated his preferences to lead the five largest division within the commission, the Division of Enforcement, the Division of Corporation Finance, the Office of Compliance Inspections and Examinations, the  Division of Trading and Markets and the Division of Investment Management. Once he is confirmed, Champ expects names to emerge for those posts and with that more clarity about the tenor of his tenure.


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