The integration of cryptocurrencies into traditional finance has seen significant milestones, with the recent approval of the first spot Bitcoin exchange-traded funds (ETFs) in the United States on January 10 being a notable example. This decision by the U.S. Securities and Exchange Commission (SEC) could potentially lead to increased capital flow and more institutional involvement in the cryptocurrency market. However, cryptocurrencies still face challenges in gaining widespread acceptance within the banking sector and among most financial institutions.
It’s important to note the SEC’s long-standing reluctance to approve these ETFs, having rejected numerous applications since their first denial in July 2013. The breakthrough came as major traditional finance players like BlackRock entered the scene and legal matters regarding Bitcoin ETFs were resolved, leading to the SEC’s eventual approval. SEC Chair Gary Gensler stated on January 10, “While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin,” indicating a cautious endorsement after a decade of rejections.
Despite this progress, the fusion of traditional finance (TradFi) and crypto remains complex. Bob Ras, co-founder of Coreum, a blockchain protocol for tokenized securities and real estate, shared insights from his experience with Sologenic, a platform for trading tokenized stocks. Ras highlighted the regulatory challenges they faced in obtaining a MiFID license in Europe, leading them to pivot towards offering tokenization solutions solely for institutions.
The divide between TradFi and decentralized finance (DeFi) is not just regulatory but also philosophical. Coreum, developed as a layer-1 blockchain with smart contract functionality to meet institutional demands, exemplifies the effort to bridge this gap. However, Ras notes that financial institutions are hesitant to adopt blockchain technology due to regulatory compliance concerns and the need for some level of control.
The recent approval of a spot Bitcoin ETF is a positive sign of crypto’s increasing alignment with the stock market. Nonetheless, winning over the traditional finance sector remains a significant hurdle. This skepticism is evident in the European Central Bank’s recent report, titled “ETF approval for bitcoin – the naked emperor’s new clothes,” reflecting a critical view of cryptocurrency. Thus, while there is growing connectivity between TradFi and crypto, substantial efforts are still required to fully integrate these two sectors.
