Regulatory Breakthrough and Institutional Entry: A Review of the Ten-Year Journey of Cryptocurrency Penetrating Wall Street

Original Title: ++The Institutional Crypto Cycle is Coming++

Host: Ryan, Bankless

Guest: Eric Peters

Compiled by: Janna, ChainCatcher

Eric Peters is the CEO of Coinbase Asset Management and the founder of One River Asset Management. This article is based on a podcast interview with Bankless, discussing Eric's entry into cryptocurrency and the transformation of the crypto market from a gray area avoided by institutions to one gradually accepted by Wall Street, providing historical insights for more crypto enthusiasts to understand industry development. ChainCatcher has organized and compiled the original content.

TL&DR:

• By 2025, the recognition of cryptocurrency will significantly increase, with BlackRock's entry being a key milestone. Traditional finance figures like Larry Fink acknowledge crypto as financial infrastructure, believing it has substantial value and that prices are likely to rise in the future.
• Traditional finance's acceptance of crypto is profit-driven, but fundamentally, blockchain can solve issues of fast transactions, low costs, high transparency, and strong security, avoiding transparency issues similar to the 2008 financial crisis.
• Cryptocurrency has risen from the general public rather than Wall Street, remaining outside traditional regulatory frameworks, leading many senior professionals in large financial institutions to adopt a conservative avoidance attitude and miss the trend.
• The goal of traditional finance is to allow stablecoins to purchase traditional assets like bonds and stocks in digital native forms, with related infrastructure built on Ethereum. Practitioners are genuinely excited about the technological reconstruction of financial infrastructure, rather than the fantasy of Bitcoin replacing the dollar.
• In 2023-2024, there will be a crypto chokehold, making it difficult for crypto companies to obtain banking cooperation. However, practitioners have not sold off assets but instead persist in building, firmly believing that technological innovation will not be completely hindered by politics and that crypto can provide a source of truth in the AI era, with a positive outlook on Ethereum combined with Layer 2.
• The U.S. government's attitude towards crypto has turned 180 degrees in a year, with the GENIUS Act being a key turning point. The Hamilton Plan first clarifies the regulatory framework for stablecoins, starting with short-term government bonds, and then promotes the integration of stablecoins with traditional financial products.
• Crypto can integrate with traditional finance, using smart contracts to maintain the transparency of SEC disclosures while reducing costs associated with traditional financial documentation and listings. Crypto technology is a crucial step in Wall Street's technological transformation, promoting greater efficiency and lower costs in finance.
• Crypto ETFs are successful products but contradict the decentralized custody concept of cryptocurrencies. Currently, Bitcoin ETF holdings account for 7% of Bitcoin's total supply, and large institutions like pension funds and sovereign wealth funds have not yet entered the market on a large scale.
• In the next five years, the crypto industry may see four driving factors: the entry of 401k funds, young people's dissatisfaction with traditional returns, the integration of AI and crypto, and wealth transfer.
• In the next five years, the collaboration between the U.S. Treasury and the Federal Reserve will become more evident, benefiting crypto assets, and the integration of AI and crypto will accelerate. Short-term risks include treasury company liquidations and security vulnerabilities in traditional finance. The industry's infrastructure and regulatory environment have improved, making catastrophic declines unlikely, with a potential correction of around 30%.

(1) Motivations for Traditional Finance to Enter Crypto Investment

Ryan: I want to talk about the changes over the past five years. In 2020, your purchase of Bitcoin as a well-known institutional asset manager in Connecticut was seen as a career risk. But by 2025, Larry Fink is openly discussing cryptocurrency, and Bitcoin ETFs have been launched, as if crypto has invaded Wall Street. What happened in the past five years that led to such a significant shift in attitude? Can you describe this process from the perspective of core industry participants?

Eric: I believe BlackRock's entry is a key milestone. Generally speaking, someone like Larry Fink, at his age and with such wealth, might choose to retire, but he keenly realized that crypto technology could disrupt the ETF industry, leading him to make the bold decision to enter. Many outstanding figures in traditional finance share a similar view. These savvy investors recognize cryptocurrency because they see it as an important cornerstone of financial infrastructure, with more applications inevitably built on it in the future. Moreover, when an asset has substantial value but few people hold it, its price is likely to rise in the future.

Ryan: Do you think this is mainly due to a shift in mindset among traditional finance practitioners, or is it because they can profit through tokenization, establishing treasury companies, and issuing ETFs?

Eric: If traditional finance practitioners do not see how blockchain technology can make financial system transactions faster, cheaper, more transparent, and more secure, then even with profit opportunities, they would not take action. Historically, many financial crises have occurred either due to low transaction efficiency or a lack of transparency. Counterparties cannot assess each other's creditworthiness, and many companies are unaware of their own asset-liability situations. Blockchain technology and cryptocurrency can precisely solve these problems. Therefore, the fundamental reason for traditional finance's acceptance of cryptocurrency is the solid value of the technology itself.

Ryan: Overall, has traditional finance generally recognized that cryptocurrency will exist long-term, become an important field, and that financial institutions must adjust their strategies accordingly and develop crypto-related strategies?

Eric: A significant characteristic of the crypto market is that cryptocurrencies are the first financial innovation to arise from the general public rather than Wall Street. Looking back at the development of the crypto industry, many of the issues that traditional finance practitioners are dissatisfied with and resist largely stem from its emergence outside Wall Street. It was never included in traditional regulatory frameworks from the start. The result is that many senior professionals in large financial institutions tend to adopt a conservative avoidance attitude towards cryptocurrency, thereby missing this massive trend.

(2) Traditional Finance's Understanding of Cryptocurrency

Ryan: From around 2016 to 2020, we thought traditional finance was beginning to understand cryptocurrency, but that was an era of talking about blockchain without discussing Bitcoin. I felt at the time that traditional finance completely misunderstood it, treating cryptocurrency as merely database technology or open ledger technology, while its connotation is much deeper. Now, in the second wave of institutional acceptance of cryptocurrency, do they really understand it?

Eric: I believe most traditional finance practitioners do not view cryptocurrency as money. The core reason traditional finance has finally begun to understand cryptocurrency is that they see stablecoins as a killer application. Traditional finance practitioners do not believe Bitcoin will replace the dollar or become the next generation payment system. They value the tool attributes of crypto technology: faster, cheaper, safer, more transparent, and programmable currency that can be pegged to sovereign currencies like the dollar, pound, or euro. Only a very small number of traditional finance practitioners believe Bitcoin will dominate the world, but this understanding is actually healthy for the industry. Governments accumulate power and rarely relinquish it voluntarily, and creating currency is one of the core powers of government. Even now, I still believe the government has the ability to prevent Bitcoin from replacing the dollar.

Today, smart people in the industry have found a way to integrate crypto technology into the financial system, which is stablecoins pegged to the dollar. With the GENIUS Act, or the "Guidance and Establishment of a National Innovation Act for U.S. Stablecoins," the trading volume of stablecoins has even surpassed that of Mastercard or Visa. After the regulatory framework for stablecoins is clarified, the direction we have been promoting is to allow stablecoins to purchase bonds, stocks, commodities, and all traditional assets, and these assets will be issued in digital native forms rather than simply adding a token on top of a paper database system. What traditional finance practitioners are genuinely excited about is the prospect of this technological reconstruction of financial infrastructure, rather than the fantasy of Bitcoin replacing the dollar.

(3) The Shift in Government Regulatory Attitudes

Ryan: During the dark period from 2023 to 2024, the crypto chokehold made it difficult for crypto companies to gain access to banks, and the U.S. administration was completely hostile towards cryptocurrencies. What were you thinking during that difficult time?

Eric: The crypto chokehold 2.0 is real. After One River was acquired by Coinbase, we tried to leverage all traditional financial connections to build banking partnerships and secure credit lines, but we repeatedly hit walls. This excessive government intervention completely violates ethical and democratic principles. However, I never considered selling off assets and leaving; instead, I have always insisted on building. My belief that crypto technology will ultimately replace traditional financial infrastructure has never wavered. Throughout human history, technological innovation has never been completely hindered by politics. I know this path will be difficult, but technology is always on our side. For example, in the future, all financial infrastructure will ultimately be built on Ethereum, and combined with Layer 2 and other technologies, more reliable and resilient applications will emerge based on this infrastructure. In the AI era, crypto technology can also provide a source of truth, helping us discern what is real, what is trustworthy, and what is the truth.

Ryan: I was surprised by the depth of the U.S. government's hostility towards cryptocurrency during that time, but this attitude has turned 180 degrees in just a year. In the past 12 months, what do you think has been the most significant event in terms of government regulation? For example, the signing of the GENIUS Act, crypto companies no longer being denied service by banks, the official proposal for the U.S. to become a cryptocurrency capital, and the SEC's crypto plan under Paul Atkins, as well as the asset tokenization promoted by SEC Commissioner Hester Peirce. Among all these positives, which one is the most important to you?

Eric: The current SEC chairman and the crypto plan are also excellent. The U.S. previously did not have such a mechanism. When we first entered the crypto space, we viewed it as a macro trading target, but the existing DeFi applications at that time were difficult to scale to the mainstream market. So we built a set of infrastructure to issue digital native securities in compliance, making it acceptable to regulatory agencies. This infrastructure was initially called OneBridge (meaning connecting crypto and traditional finance) and was later renamed the Hamilton Project. We invited former SEC Chairman Jay and current Trump administration member Kevin to join the board.

My initial idea was to issue complex digital native securities, but Jay suggested starting with the simplest short-term government bonds because they are boring but safe targets. He believed that the first step must be to clarify the regulatory framework for stablecoins, and then integrate stablecoins with traditional financial products, starting with the most liquid and simplest tools. Once the financial system builds confidence and sees returns, it can gradually expand to more complex securities. The GENIUS Act is the first key step in all of this.

(4) The Best Combination of Crypto and Traditional Finance

Ryan: In a tokenized world, there is insufficient disclosure information, and information in traditional finance is lagging, requiring the handling of a large amount of paperwork. Moreover, a treasury company listing on NASDAQ or the NYSE can cost tens of millions of dollars. However, with smart contracts, all of this can be digitized, preserving the transparency of SEC disclosures while using technology to reduce costs. Do you think this best combination is achievable?

Eric: It is entirely possible, and this is our direction. The integration you describe essentially empowers the traditional financial system with crypto technology rather than disrupting it. The reason the U.S. capital markets are the deepest and most liquid in the world lies in their robust regulatory framework: investors believe the government will not arbitrarily seize assets, and there are regulatory agencies to back them up in disputes, with fair courts to resolve litigation. Without these, deep liquid markets cannot exist. The crypto industry will not abandon these advantages but will make them more efficient. For example, the tens of millions of dollars in listing costs you mentioned are clearly unreasonable and will not be the case in the future. In financial structure design, all disclosure documents can be embedded or linked to smart contracts, saving on computation and storage costs while ensuring transparency.

In the future, there will indeed be law firms dissatisfied due to reduced fees, but looking back at financial history, no industry has invested more in technology than the financial services industry. For decades, Wall Street has been using technology to transform the industry: trading speeds have increased, while costs have continued to decline. Crypto technology is just the next key step that will push this efficiency and low cost to new heights. The best combination you describe is the future of finance.

(5) The Upside Potential of Crypto Assets in the Next Five Years

Ryan: Let's talk about successful cases of the combination of traditional finance and cryptocurrency, like ETFs. How do you view the impact of crypto-native ETFs on traditional financial markets? What effects do these ETFs have on the crypto market and traditional finance, respectively?

Eric: Crypto ETFs are indeed extremely successful products, but they contradict the decentralized custody and anti-centralization concepts of cryptocurrencies, yet their scale is astonishing. Currently, Bitcoin ETF holdings account for 7% of Bitcoin's total supply. However, from my perspective, truly large institutions have not yet entered the market on a large scale, such as large pension funds, large endowment funds, insurance companies, and sovereign wealth funds. The large institutions I have primarily interacted with in my career have still not genuinely ventured into cryptocurrency; they have missed the opportunity and now face significant cognitive dissonance. In 2021, many top global institutions established digital asset working groups to explore how to enter the market. But then the crypto bear market arrived, and these institutions completely halted all plans. Now that cryptocurrency has returned to a high point, they are unable to build positions in time. For these professional investors, the first step now is to invest in infrastructure and allocate funds to crypto ventures rather than directly buying cryptocurrencies.

However, this is good for the market, as you can clearly see who will take over at higher prices in the future. These institutions will gradually enter the market, possibly starting with increased infrastructure investment, and eventually holding a certain scale of crypto tokens. This will not replace the dollar but will become part of the currency backing, like gold or other commodities. These narratives will ultimately attract more large institutions to enter at higher prices, so the current absence of institutions makes the future even more promising.

Ryan: How high do you think the prices of crypto assets like Bitcoin and Ethereum can rise? At what stage are we currently in this journey?

Eric: When I entered the crypto space at the end of 2020, I set a 10-year investment cycle. Now it seems that it may not take that long, but at that time my judgment was that it would take about 10 years to clarify people's misunderstandings about crypto assets and another 10 years to build the infrastructure to eliminate the friction of acquiring crypto assets. Ten years later, the valuation logic of crypto assets will converge with that of other assets in the economy. We are currently in the middle of this 10-year cycle, as there are many developments in the industry, including the legislation of stablecoins, and subsequent steps like traditional assets being tokenized are also progressing.

The core logic of the crypto market is driven by supply and demand, but there are still structural frictions in the market. For example, Trump's recent executive order allows 401k plans to allocate to crypto assets, which means that the friction for buyers to enter will continue to decrease, leading to a continuous influx of funds and rising prices. More importantly, the crypto market is a reflexive market. Taking Bitcoin as an example, its value has no fixed anchor point, and there is currently no mature valuation model. In the next five years, multiple themes will jointly drive the crypto market: first, the entry of 401k funds; second, income inequality, with young people dissatisfied with the 7% annualized returns of traditional index funds, leaning towards chasing 100x returns in crypto assets; third, the integration of AI and crypto, as AI needs crypto technology for authenticity verification, and high-speed financial interactions between AI agents also require a crypto payment system without intermediaries; fourth, the transfer of wealth from the baby boomer generation to younger people. The overlap of these themes may create extreme market conditions.

From a probabilistic perspective, I believe there is a 25% chance of a bubble-like surge in Bitcoin in the next five years, with reduced entry friction and passive funds pouring in, driving prices to soar; a 50% chance that Bitcoin will fluctuate between $50,000 and $250,000; and a 25% chance of being below that range, possibly due to unforeseen risk events, but this probability may actually be lower. Ethereum is more of a transactional asset; as Ethereum prices rise, on-chain transaction costs increase, which will drive innovations in Layer 2 and other technologies to reduce costs, potentially suppressing Ethereum prices and making its volatility more pronounced.

(6) Macroeconomic Trends in Crypto Investment Over the Next Five Years

Ryan: Do you think treasury companies are a positive or negative for the market? Are there risks involved?

Eric: I believe these treasury companies are unhealthy in the long run, but they are still in the early stages and have not yet caused substantial harm. Vitalik's previous response to this issue was very insightful; he believes these companies are essentially creating a hybrid of options and derivatives based on crypto assets. Wall Street's tendency is to financialize, leverage, and amplify any asset. Currently, these treasury companies have begun using various tools for leveraged operations, which have indeed been effective in the short term. However, the long-term risk is that Wall Street may embed excessive leverage in these treasury companies while charging high management fees, which is detrimental to ordinary investors; and once the market experiences a 30% correction, high leverage may trigger a chain liquidation, damaging the credibility of the underlying crypto assets. But currently, these companies are still small in scale and do not pose a systemic risk.

Ryan: Returning to the 10-year crypto investment cycle you mentioned, five years have passed, and in the remaining five years, what certain macro trends do you think will support crypto assets? What trends are you willing to bet on?

Eric: First, the collaboration between the U.S. Treasury and the Federal Reserve will become more evident and public. When the debt scale is too large and the interest on the debt is determined by Federal Reserve policy, the government has a strong incentive to merge fiscal and monetary policy. The core logic of this collaboration benefiting crypto assets is fiscal dominance; the government faces enormous debt and will choose mild inflation to dilute the debt: stimulating rapid economic growth while maintaining low interest rates essentially taxes savers. In a low real interest rate environment, this is traditionally very favorable for non-yielding risk assets like crypto, and this trend will continue in the future.

Second, the integration of AI and crypto will accelerate, which is a rare technological resonance in economic history. AI is expected to significantly enhance productivity in the U.S. and globally, allowing the economy to operate in a high-growth, low-interest rate environment, creating conditions for inflation to dilute debt; at the same time, AI needs crypto technology to solve authenticity verification, such as using blockchain to authenticate videos and data. The high-speed financial interactions between AI agents also require a crypto payment system without intermediaries. This technological complementarity will greatly enhance the actual demand for crypto assets. Additionally, the compliance innovations initiated by the GENIUS Act will continue to advance, and the gradual tokenization of traditional assets and the popularization of stablecoins will eliminate the friction of using crypto assets, all of which are long-term positives supporting the crypto market.

Ryan: But all of this seems too clear and simple, which makes me worry that we might overlook risks. What risks could overturn the current optimistic expectations?

Eric: The short-term risks mainly fall into two categories: first, the liquidation risk of highly leveraged treasury companies. If a certain type of treasury company becomes too large and highly leveraged, a 30% market correction could trigger a chain liquidation, leading to a 70%-90% drop in crypto asset prices and damaging the credibility of the underlying assets. Currently, these companies are still small, but they may become a risk point in 2-3 years. Second, there are security vulnerabilities after traditional finance enters the market. As traditional financial institutions enter the crypto space, if some institutions build their own infrastructure while neglecting security, it could lead to large-scale hacking or asset theft, thereby undermining market confidence. Overall, in the next five years, the crypto market will inevitably experience a correction of around 30%, but the probability of a catastrophic decline is very low, as the current industry infrastructure, regulatory environment, and institutional acceptance are far beyond what they were in previous cycles.

(This article is for reference only and does not constitute any investment advice)

++Click to learn about job openings at ChainCatcher++

Recommended Reading:

++Wall Street vs. Cryptocurrency: The Lobbying Battle in Finance is Heating Up in Washington++

++Opinion: Crypto Treasury is a Step Back in History++