The crypto boom attracts Wall Street banks

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The author is a former head of global equity capital markets at Bank of America and is now a managing director at Seda Experts.

Bitcoin’s phenomenal growth this year has left Wall Street in a quandary: How far should investment banks go to support cryptocurrency-related capital increases? Recent offerings show a profound shift in thinking.

Before long, big banks kept crypto at arm’s length. The sector had a reputation for racism, and bank leaders were motivated by hatred. JPMorgan CEO Jamie Dimon has labeled Bitcoin a “fraud” and a “Ponzi scheme.” Fears of control fueled the cold. Crypto deals are left to small investment banks.

But times have changed. Securities and Exchange Commission Approval In January 2024, the bitcoin exchange marked the watershed of financial transactions. Moreover, the election of Donald Trump, perhaps He announces. Contrary to the skepticism under Chair Gary Gensler, moving toward a more crypto-tolerant SEC.

As deal sizes swell, so does the list of underwriters. Barclays and Citigroup have led multiple convertible bond offerings for bitcoin investor MicroStrategy this year. Goldman Sachs has raised money for Applied Digital, a data center operator for bitcoin miners. JPMorgan has made heavy convertible bonds for bitcoin mining and infrastructure groups Core Scientific, Mara and Iron.

As banks debate whether to dive into the space or save, the key question is: Can they lawyer these deals through to the end, line up prospectuses for risk factors and call it good? Or is it too dangerous to be associated with what many see as a beastly speculative sector?

The answer is not binary. It is on a spectrum that reflects each bank’s risk tolerance and strategic outlook. And it is not clear that all crypto-related companies should be treated equally. An established exchange like Coinbase may have a different risk profile than a bitcoin miner or an investment vehicle like MicroStrategy. Even within the same companies, reputation issues differ.

Look at MicroStrategy and its founder, Michael Saylor. Without admitting wrongdoing, they both settled for substantial sums of money in 2000 with the SEC for accounting fraud allegations and in June 2024 with the District of Columbia Attorney General for tax evasion. Such a pattern triggers a top management review of customer preferences. Apparently, Barclays and Citigroup agreed with the association.

If all this is familiar, it should be. Take Special Purpose Acquisition Companies or Spacs. Once shunned by some bulge-bracket banks, wholesale cars were embraced by Wall Street during the 2019-2021 boom. But by mid-2022, banks quickly pulled back, citing reputational concerns. Raising crypto capital has a similar feel – banks are in favor of creating a dynamic frontier and reputational return in pursuit of windfall payments and market share.

The drivers of these decisions are multifaceted. The legal risk is huge. General counsel is like, “Are we going to get sued if we have these tanks?” You will lose sleep over such questions. Media scrutiny is also terrifying; No one wants their company in negative headlines.

But risk alone does not drive behavior. Fees are important. And with bitcoin capital markets, they are very important now. More than $13 billion in crypto-related derivatives were issued in 2024, most of which came in the last quarter, according to IFR data. This translates into a payout pool that he estimates will be at least $200mm. And MicroStrategy is paying a 2 percent fee to banks handling the sale of its $21 billion equity offering. That kind of disposable income makes maintaining a good reputation feel like a luxury.

There is an unwritten code of courtesy in banking. Some businesses – such as adult entertainment – are prohibited even if they are perfectly legal. Cannabis companies have also struggled to convince big-name banks to underwrite their offerings. His refusal did not arise from moral outrage; It’s pure optics. Bankers know that some businesses invite more public heat than they deserve.

But once a few banks breach their standards, the pressure mounts for others to follow suit. It is safer to move as a pack; No bank will be identified if an error occurs. Competitiveness also plays a role. No banker wants to explain to their superiors why they missed their budget targets or fell down the league tables.

In short, engagement isn’t a judgment on crypto, but rather an indication of how investment banks weigh the three Rs of deal selection: risk, reward, and reputation. In an ongoing process of readjustment, senior leaders are balancing legal exposure, media backlash, regulatory risk, and competitive pressures to determine where the “respectable” boundary lies. As Bitcoin moves from edge to edge, big banks are adding to the platform one deal at a time.