No one can miss the surge in news around traditional market institutions making loud new crypto plays — from BlackRock, Deutsche Bank, Schwab, Citadel Securities, to Fidelity.

For me, it is less news in and of itself — I fully expect these players to be wherever there is the potential for money to be made. What is more interesting to me is the calculus behind these moves as well as the potential implications.

First, there is a calculus in the willingness to make *public* facing moves here (as opposed to making products/investments in stealth). It may, at a minimum mean, we are largely recovered from the toxic public relations overhang from FTX. Also, the public buy-in signals loudly to policymakers that large swaths of tradfi are not aligned with the factions of the government that have tried to cull crypto off the map in this administration. This may be a more abrupt shift for Dems who have historically relied on testimony from banks and national exchanges in hearings to highlight institutions that follow existing rules, show a distinction in what ‘good market actors’ look like, and reaffirm to them that no new rules are needed. In short, policymakers do not have the buy-in they assumed (looking at you, Brad Sherman) and this in turn helps give efforts like the market structure bill actual legs – something we really weren’t sure of given it will need bipartisan support.

I think these moves also form part of a larger shift in the dynamics – for one, if traditional finance is making public moves in crypto, you can all but guarantee their lobbyists are at work putting pressure on policymakers to create regulated/compliant pathways for them to be in the market. This may manifest itself in a number of ways (we have seen that most of the license grants in crypto have been awarded to tradfi so there may be some truth to the “taking over” narrative) but from a power dynamics perspective, the “we don’t need new laws” camp may be losing support. As possible evidence of this shift, while Maxine Waters was not particularly engaged at the last hearing for the draft market structure bill, she has recently sent letters to Gensler and Yellen to get their respective takes on the draft legislation. While some have guessed that the letters were sent in response to Gensler asking for an opportunity to weigh in, this seems unlikely to me – we already can be 100% certain of his thoughts and he is unlikely to have more nuance than what he has already stated very recently and in multiple public forums. This take on Twitter seems more likely to me:

Waters was actively working towards the stablecoin bill and got derailed – she feels more pressure to move now, and to do so, she will need to fight through the “we don’t need new laws” camp. Yellen has been on record recently saying new laws are needed so Waters is being adept politically by inviting her as a high ranking member of the Biden admin to comment.

Other smaller signals of a shift in sentiment among policymakers are that Senator Warren has largely gone dark of late on crypto – deemphasizing her anti-crypto rhetoric and campaigning and largely moving on to other topics. She may never be a proponent, but it may be increasingly hard to argue against regulation. More broadly, while dems may still largely not be ready to come to the table quite yet, the scene is set in the months ahead for more progress — the SEC may very well lose in court to Grayscale, undermining their talking points among dems around their unblemished record in court. They have also bitten off more than they can chew between their rulemaking agenda and their active + courted litigation. Last, the “no new rules” camp pushed through and heralded Prometheum as an example of success under the current regulatory landscape. Which, just to be clear, is  non-operational. Not the best look for their ‘compliance is possible’ champion to only speak in hypotheticals but I cannot imagine it going well for that camp in any future scenario – the longer it takes for Prometheum to start operations, the worse it looks … but still likely not as bad of a look than if Prometheum tries in earnest to start to operate without more exemptive relief.