Learn How Wall Street Can Kill Crypto
This write-up is on the influence of crypto on the Wall Street. How are they faring on the market?
Crypto On The Wall Street
It has been long believed by cryptocurrency hopefuls that institutional investors may hold the key to bitcoin’s next Bull Run, and they want to believe that Wall Street is just another eager investor, being ready to pump money into the young market and enjoy the same returns that retail traders have viewed as. While the projection misses the mark in two ways, the first is the Wall Street is already neck-deep in the cryptocurrency market and the second is that the only last thing Wall Street intends to do is to pump this precarious market with its capital.
Hereby institutional finance has had many opportunities to make money in the cryptocurrency space, as the influence spreads the crypto market is transforming it to something new whether intentionally or as a byproduct of its flaws where the Wall Street is slowly killing cryptocurrency.
How Could It Be Possible That Wall Street Kills Crypto?
The shortest answer to the question above is hypothecation as we’ll save you a trip to our dictionary meaning hypothecation is when a firm owns equity shares in a company signing those shares a way to a lender as collateral. Here let’s say Fund A needs $ 100million with Broker B agreeing to lend them the money in exchange for $ 100 million worth of the securities owned by Fund A. this is hypothecations and rehypothecation occurs when broker B uses the assets that they got from Fund A as collateral in its business operations. It is here that in the traditional financial world, this is easy to do for a few reasons.
Firstly it is that shares are not settled physically where rather they are written as certificates of ownership making it easy to pass them along as an IOU with another reason accounting and tax laws allow the same asset to be attributed to different parties as long as each party records a different amount of debt on their balance sheets. Here though counterparty risk increases significantly with a system like this, it is necessary to grant increased flexibility to banks and brokers.
Why Is It That Matters For Cryptocurrency ?
It is better to consider that many major cryptocurrencies even though they claim to rely on hard-coded Proof of Work or Proof of Stake are then traded on centralized exchanges as if a Bitcoin were to be rehypothecated six times as brokers and exchanges trade debt and collateral as who gets to claim custodianship if it's needed? The other question is who owns the cryptocurrency at the end of the day if multiple parties know the private key or if no one does?
It is here that if a broker goes bust and someone needs to pay up, or if a hard fork occurs and someone is in the need to vote with their stake that is unclear who owns the Bitcoin because the collateral chain is so long. It is here that regardless of this complex model of the transient ownership that simply doesn’t work when it comes to the ledger-based assets thereby resulting in multiple parties expecting remuneration at the same time. Here is a chance of a meltdown in this scenario that could be devastating.
Explaining How Wall Street Could Make Bitcoin More Stable
When Bitcoin was traded exclusively on fiat exchanges eight years ago, meaning users could only buy or sell as there was no way to short Bitcoin and there were no futures or derivatives based on the cryptocurrency with all purchases were settled in Bitcoin meaning those who bought a coin effectively removed it from the market. Here’s how Bitcoin’s, limited supply and deflation as nature made it easy for the price to rise exponentially as more people bought and fewer people sold expecting greater returns the longer they hold on to the currency.
It is here that naturally it is contributed to volatility as the market was directly exposed to the forces of supply and demand. Here the mass fear of missing out could send bitcoin’s price soaring as the same fear could bring it back down just as quickly. We take into account that this is where Wall Streets’ introduction of those Bitcoin futures to its brokers as well as exchanges reduced their volatility significantly and simply because futures allowing these people to speculate on the bitcoin’s downside as well as its upside.
This is where these balances of the market and making it just as profitable to suppress Bitcoin as it is to pump it. With instruments, it additionally mimics bitcoin’s price and isn’t cryptocurrencies themselves the supply and demand factor is relevant. This is where Bitcoin’s spikes and swings have become much less pronounced. The high-frequency trading bots also now populate crypto markets which further reduces the once impressive instability.
Concluding On Why Investors Want A Bitcoin ETF
Thereby a powerful financial trade entity called the Futures Industry Association influences the traditional market around the world composed of clearinghouses, exchanges, trading firms, and other stakeholders of the global financial industry, the FIA may be behind the consecutive delays and rejections of the many Bitcoin exchange-traded funds that have been proposed in recent years.
It is thus a Bitcoin ETF that represents the real pipedream for crypto enthusiasts for two major reasons, where the first one is ETFs settled in an underlying asset, and second, they’re plugged into the traditional financial markets via, brokers. Hereby Bitcoin with an ETF would become more accessible to retail investors who still don’t have the patience or wherewithal to buy Bitcoin on cryptocurrency exchanges or operate blockchain wallet and simply put it’s the secret ingredient for mass adoption.
It is now that the Bitcoin ETFs from several firms have been flat out denied including from early Bitcoin investors Cameron Winklevoss and Tyler Winklevoss as also those from GraniteShares, Direxion, ProShares, VanEck, as well as others. While the truth is that it’s hard not to see the past few rejections as a greater indicator that Wall Street may want the cryptocurrency to die before it enters its heyday. As of now even though there are avenues for profit in crypto, Wall Street cannot ignore the significant threat that the crypto market and its great ambitions represent.