Sophia’s Thoughts on TradFi Adoption
Major TradFi institutions are making strides in integrating blockchain and digital assets into their services. What moves are they making?
These are Sophia's Thoughts:
Traditional finance, or TradFi, includes traditional banking, stock markets, bonds, venture capital, and hedge funds, representing the established financial system.
BlackRock's IBIT received SEC approval for option trading on September 20th, a major step that could attract institutional liquidity and increase market participation.
Franklin Templeton is exploring a Solana-based mutual fund and Citigroup is looking to Solana for cross-border payments.
BNY Mellon’s SEC approval to offer Bitcoin custody services provides more custodial options for institutions, reducing reliance on Coinbase, the main custodian currently.
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🚀 Last week’s market performance
The market gained steam this week rising 10.4% after the Fed cut rates by 50 bp. Bitcoin (BTC) followed suit rising 8.7%. The best performing coin this week was Immutable (IMX) which rallied 47.3% on growing usage by game developers and new games being launched on the chain. The worst performing coin this week was Unus Sed Leo (LEO) which swam against the rising tide losing 1.2%.
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🏦 BlackRock’s Bitcoin Options Push
The U.S. Securities and Exchange Commission (SEC) granted the green light on September 20th for BlackRocks iShares Bitcoin Trust (IBIT) to list options. The SEC noted, "Options on IBIT would provide investors with a hedging and risk management tool to manage exposure to the price of bitcoin and bitcoin-related products and positions." These options will be physically settled using American-style exercise, meaning holders can exercise their rights any time before or on the expiration date. Bloomberg Intelligence ETF analyst Eric Balchunas was enthusiastic about this approval.
He said on X, “Huge win for the bitcoin ETFs (as it will attract more liquidity which will in turn attract more big fish).” Balchunas also added, “Important note: This is just one stage of approval, the OCC and CFTC has to approve as well before they officially list. The other two don't have a 'clock' so not sure when they'll be approved. A big step (though) nonetheless that the SEC came around.”
On a broader scale, BlackRock has positioned Bitcoin as a “unique diversifier” amid growing concerns over U.S. federal debt and inflation. In a recent report, BlackRock noted that "the growing concerns in the U.S. and abroad over the state of U.S. federal deficits and debt has increased the appeal of potential alternative reserve assets." Bitcoin’s fixed supply and independence from traditional financial systems have made it increasingly attractive as a hedge against future economic instability. Eric Balchunas highlighted this shift by referring to Bitcoin as the “2nd amendment of money” and pointing out that U.S. debt continues to grow at a rate of USD 1 trillion every 100 days, with no end in sight. It appears that institutions are increasingly turning to Bitcoin as more countries struggle with debt accumulation.
💸 Franklin Templeton and CitiBank Explore Solana
Financial heavyweights Franklin Templeton and Citigroup have announced plans to integrate the Solana blockchain into their services, a move in the adoption of decentralized finance (DeFi) solutions by traditional financial (TradFi) institutions.
At the Solana Breakpoint 2024 event in Singapore, the USD 1.4 trillion asset manager Franklin Templeton revealed its intention to launch a mutual fund natively on the Solana blockchain. The firm’s Development Lead, Mike Reed, explained that Solana’s low transaction costs and high scalability made it the ideal choice for handling the large volume of ledger entries required by a mutual fund. He noted, “We see blockchain as essential for driving operational efficiency and reducing costs in our financial services. Solana offers the transactional capacity we need to handle the volume of ledger entries for a mutual fund, making it the right choice for this initiative.”
Citigroup, one of the largest banking groups in the U.S., is similarly exploring Solana for cross-border money transfers and smart contracts. Citibank has previously tested blockchain applications, including tokenizing private equity funds on the Avalanche blockchain earlier this year. Citibanks’ aim is to leverage Solana’s platform for efficient, fast, and low-cost international transfers, with smart contracts enabling instant and seamless settlements.
Regulatory hurdles remain for some aspects of Solana’s TradFi adoption. The main obstacle being SEC approval for a Solana-based ETF which currently has low odds amongst analysts and a 6% likelihood on Polymarket. Overall, however, these announcements represent a broader trend among major financial institutions as they explore blockchain's potential for improving operational efficiency. Templetons’ Reed further emphasized the benefits of Solana’s infrastructure, praising its development tools as “second to none.”
🔑 BNY Mellon’s SEC Approval for Crypto Custody
The USD 2 trillion asset custodian BNY Mellon has become the first major U.S. financial institution approved by the SEC to offer Bitcoin custody services. The SEC granted BNY Mellon a variance from the restrictive Staff Accounting Bulletin (SAB) 121. This exemption allows BNY Mellon to hold Bitcoin and other digital assets for clients without listing them as liabilities on its balance sheet. While the majority of asset managers rely on Coinbase as their primary custodian, BNY Mellon's entry into the crypto custody space is a positive step toward diversifying custody providers and reducing reliance on a single institution for handling digital assets. The approval was confirmed during a public hearing by Wyoming’s Select Committee on Blockchain and Financial Technology, with Senator Cynthia Lummis' counsel Chris Land confirming the decision.
The decision has sparked concerns within the crypto industry. Wyoming Select Committee Chair Cyrus Western expressed frustration over what he sees as regulatory double standards stating “those double standards are getting worse and worse and not better.” The main concern being that smaller firms face more stringent requirements despite complying with guidelines. Firms, including Custodia and Kraken, argue that BNY Mellon’s approval gives larger institutions an unfair advantage in regulatory progression. In addition, the crypto community has raised concerns about Bitcoin’s decentralization. Bitcoin was originally designed to operate outside of traditional financial institutions. With large banks like BNY Mellon now involved, some fear this could shift Bitcoin away from its founding ethos.
While this approval represents a major milestone for BNY Mellon and the broader digital asset industry, ongoing debates around centralization and competition will continue to shape the evolving landscape of crypto custody services.
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