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Wall Street powerhouses BlackRock, Fidelity, and Citadel Securities are making aggressive strides into the realm of cryptocurrency, despite escalating controversies and increasing scrutiny from regulators. As they broaden their services, they pose a significant threat to existing cryptocurrency-oriented enterprises.
These Wall Street firms are building multifunctional platforms where they can provide a host of services—settlement, custody, and trading—all in one place. They aim to streamline the process, eliminating middlemen and additional layers that have traditionally protected users, observes financial analyst Beattie.
By contrast, EDX Markets—a cryptocurrency exchange venture supported by prominent names like Citadel Securities, Fidelity, and Charles Schwab—flaunts its "safe and compliant" attributes. This trend suggests that mainstream finance is creeping into the crypto world, according to Sean Tuffy, a former Citigroup executive, who suggests that if crypto is to endure, it may inevitably resemble traditional finance.
The advent of new regulations seems more probable than ever, as complaints mount and calls for oversight become more prominent. Recently, Nevada officials took control of Prime Trust, charging that the company used client money to purchase cryptocurrencies to meet withdrawal demands.
Ryan Shea from the cryptocurrency index trading company Trakx warns of potential pitfalls associated with amalgamating settlement, custody, and trading under one roof. Shea points out that this approach could expose customers to front-running, the mixing of client funds, and an inability to independently verify clients' funds.
Crypto.com, a cryptocurrency exchange, recently came under scrutiny following a Financial Times report, which revealed that it operated an internal trading desk and engaged in trades against its clients. While Crypto.com confirmed the existence of an internal market maker, it defended its actions as standard practice.
Another highlight has been the SEC's lawsuit against Coinbase for not registering to offer brokerage, exchange, and clearing services—tasks traditionally performed by distinct entities in equity markets. Despite the potential inefficiencies, the SEC argues that segregating these services could provide more security to cryptocurrency users and protect them from malicious practices.
