Regulators handed the crypto industry a five-year head start. Can Wall Street catch up?

With the passage of genius and the momentum behind the clear legislation of Congress, the clarity of digital assets is ultimately within reach. But as that clarity arrives, are the incumbents of cryptography the real winners?

For years, the dominant narrative from the crypto industry was that unclear regulations and enforcement bound industries in the world’s largest economy. I did it. The lawsuit has crippled the startup. Capital has moved American talent overseas.

Above all, one group was suffering. This is the country’s more than 3,300 US broker dealers. Broker-dealers, bound by federal law, were forced to sit on the sidelines as billions of dollars flowed into the code. Retail investors have funded the rapid expansion of Coinbase, Robinhood and other fintech companies.

Crypto has grown over the past five years. This is the only wound of 2022 that was damaged by the FTX explosion. At the same time, US brokerages sat idle, waiting for guidance on how to issue, trade and detain these assets.

The lack of clarity in regulations did not block the cipher. It gave the crypto industry a multi-year head start to gain market share and build brand loyalty. But with clarity on regulations becoming sharper, does Wall Street have the advantage of a second-movers on digital assets?

The path is becoming more clear. In July, SEC Commissioner Hester Perth said tokenized stocks are securities and must comply with federal securities laws. Her statement followed the launch of Robinhood’s tokenized inventory in the EU, followed by a direct message. US tokenized securities products are subject to federal securities laws.

This statement levelles both incumbent and vandal arenas by showing that there is no circumvention of federal securities laws, in line with the SEC’s previous guidance on modernizing US capital markets. Traditional finance and cryptography are currently on equal footing.

Wall Street quickly moves and offers its own digital asset products. Over $170 billion in assets have flowed into 105 crypto ETFs trading in the US market, with BlackRock and Fidelity winning more than $100 billion. The major banks, which are now real by Citigroup and JPMorgan, are launching stubcoin to ensure payments are carried out across the railroads. And it’s not just the biggest banks. Financial technology giant Fiserv will supply regional banks with the new Stablecoin FIUSD.

The new path offers retail and institutional investors the opportunity to enter the market. Broker dealers can provide direct exposure to digital assets via special purpose clearings to clear broker dealers without overhauling their infrastructure or applying for a new license. This opens doors to electronic trade, Merrill Edge, and Fidelity to meet the demands of clients of digital assets while staying straight within the boundaries of US law.

Internationally, trends are also clear. Recently, Standard Chartered launched Spot Crypto Trading Desk, becoming the first global, organizationally important bank to provide Bitcoin and Ether to institutional clients.

Ironically, it is now a legacy crypto company that is competing to embrace the regulated model it once tried to bypass. The company has acquired SEC registered broker dealers, sought FINRA membership, applied for a banking charter, and expanded its offerings to brokerages and bank accounts.

SEC Chair Paul Atkins said in May that “securities are increasingly moving from traditional (or “off-chain”) databases to blockchain-based (or “on-chain”) ledger systems.” His priority is to “develop a reasonable regulatory framework for Crypto Asset Markets that establishes clear rules for roads for issuing, managing and trading crypto assets.”

Atkins’ vision to integrate blockchain into existing market infrastructures highlights the fundamental truth. Forwarding is not about creating a parallel system, but about upgrading an existing system. This supports companies already immersed in compliance, operations and investor protection. US broker-dealers can quickly benefit from this given their correspondent clearing, compliance with existing compliance structures, large customer base, and operational scale implementation.

Beyond broker-dealers, there is an opportunity for Wall Street to lead the development of the US digital market and solidify its country’s position as a global leader in capital formation, market integrity and financial innovation. Wall Street has infrastructure, shaped regulatory clarity, and is in demand for investors. The question is who will guide the next chapter.