Wall Street has largely been a skeptic of the nascent digital asset industry. Investment giants might have continuously monitoring the craze from a distance, but have yet to fully embrace digital assets as legitimate. They could consider doing so in 2022 – but is there still an opportunity?
Crypto Firms Have Expanded Exponentially in 2021
In the last days of December, The Tokenist argued that 2021 has been Bitcoin’s best year to date—despite having a better performance in terms of annual price change in 2020. Considering the crypto industry as a whole also witnessed massive growth, 2021 could have been crypto’s best year as well.
The growth is largely represented by crypto firms increasing their valuations by multiple factors from one fundraising round to another. For instance, Coinbase had a valuation of just $8 billion in 2020. However, when the crypto exchange went public in mid-April 2021, it earned a valuation of $100 billion, rivaling the likes of Goldman Sachs—with a significantly smaller team.
Similarly, the giant crypto derivatives exchange FTX, which garnered a valuation of $1.2 billion in 2018, closed several fundraising rounds in 2021 and increased its valuation exponentially. Most recently, it raised $1.5 billion, increasing its total valuation to $32 billion, while FTX.US, the US arm of the exchange, was valued at $8 billion.
Among other notable examples, Circle, a crypto firm and issuer of the popular stablecoin USD Coin (USDC), increased its valuation from $3 billion in 2018 to $27 billion by late 2021. Further, the crypto lending platform BlockFi gained a valuation of $3 billion compared to a $435 million valuation it had gained a year ago.
All in all, more than half of all global crypto unicorns reached their unicorn status in 2021. According to The Block Research, there are now a total of 64 crypto unicorns, which are crypto companies worth over $1 billion. Specifically, 39 of these crypto firms reached this threshold in 2021.
In fact, to get an idea of how big crypto firms have become, it would be sufficient to probe some of their recent acquisitions and partnerships. For instance, the Hong Kong-based cryptocurrency exchange Crypto.com acquired the naming rights for downtown Los Angeles’ iconic arena, previously called the iconic Staples Center, in a $700 million deal.
Similarly, crypto exchange FTX has been aggressively expanding throughout 2021, allocating half a billion dollars to acquisitions. More notably, the exchange finalized its acquisition of LedgerX, a regulated digital currency futures and options exchange, in late October. It has also made several partnerships in sports, esports, NFTs, and has partnered with a number of high-profile figures.
Is Crypto Now Too Big for Wall Street to Swallow?
Wall Street has been sitting on the sidelines of crypto thus far, expressing no serious intentions in jumping in. This interaction could have stemmed from concerns around a lack of regulatory clarity in the US, or the fear of a China-like blanket ban on the industry. Another possible explanation is that Wall Street it they would have the opportunity to get into crypto when the right time arrives.
The US SEC recently revealed that the ball is in Congress’ court to regulate crypto and that the regulatory body has no intentions to implement a ban on the industry. This can suggest that the time could be right for Wall Street to enter crypto—or that we’re inching closer. However, does the opportunity exist at this point?
The current environment suggests the answer is no. Crypto firms are now worth billions of dollars, and they are continuing to grow at an incredible pace. Why would they sell out now?
Furthermore, large crypto firms might even consider acquiring banks or incumbent exchanges in a bid to obtain licenses and hasten the inevitable regulation—instead of the other way around. While this remains a theoretical possibility for now, it’s certainly plausible.
For instance, back in April, when Coinbase gained a valuation of $100 billion, it would have been able to purchase the Chicago Board Options Exchange (CBOE) for less than 10% of its equity.
If this is what we saw at the start of 2021, what will we see in 2022?