Investment banks are increasingly supporting cryptocurrency-related capital raisings, reflecting a shift in sentiment towards the sector. The SEC's approval of bitcoin ETFs and a potential move towards a more crypto-friendly regulatory environment have fueled this trend. However, banks face a dilemma: how to balance the potential rewards with the inherent risks associated with a volatile and speculative market.
The writer is a former global head of equity capital markets at Bank of America and is now a managing director at Seda Experts. Bitcoin’s spectacular surge this year has reignited a dilemma on Wall Street : how far should investment banks go in supporting cryptocurrency-related capital raisings? Recent offerings reveal a profound shift in thinking. Not long ago, big banks kept crypto at arm’s length. The sector had a racy reputation, and bank leaders were vocal in their disdain.
JPMorgan’s chief Jamie Dimon branded bitcoin a “fraud” and a “Ponzi scheme”. Regulatory fears deepened the chill. Crypto deals were left to smaller investment banks. But times have changed. The Securities and Exchange Commission’s approval of bitcoin exchange traded funds in January 2024 marked a watershed. Moreover, Donald Trump’s election probably heralds a move to a more crypto-tolerant SEC, in contrast to the scepticism under chair Gary Gensler. As deal sizes have swelled, so too has the roster of underwriters. Barclays and Citigroup have led multiple convertible bond offerings this year for bitcoin investor MicroStrategy. Goldman Sachs raised money for Applied Digital, a data centre operator that caters to bitcoin miners. JPMorgan has underwritten hefty convertible bonds for bitcoin mining and infrastructure groups Core Scientific, Mara and Iren. As banks debate whether to dive headlong into the space or hold back, the central question is: can you lawyer these deals to the hilt, stack the prospectus with risk factors and call it good? Or is it too risky being associated with what many see as a wildly speculative sector? The answer is not binary. It lies on a spectrum that reflects each bank’s risk tolerance and strategic outlook. And it’s not clear that all crypto-related companies should be viewed equally. An established exchange such as Coinbase may have a different risk profile from a bitcoin miner or an investment vehicle like MicroStrategy
CRYPTOCURRENCY INVESTMENT BANKS WALL STREET REGULATION RISK
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