Regulatory Breakthroughs and Institutional Entry: Cryptocurrency's Ten-Year Journey of Penetrating Wall Street

Host: Ryan, Bankless; Guest: Eric Peters; Translator: Janna, ChainCatcher. Eric Peters is the CEO of Coinbase Asset Management and founder of One River Asset Management. This article, based on a podcast interview with him on Bankless, covers Eric's journey into cryptocurrency from a gray area shunned by institutions to its current acceptance by Wall Street. This article provides a historical perspective for crypto enthusiasts to understand the industry's development. ChainCatcher has compiled and translated the original content. TL;DR: Cryptocurrency acceptance will increase significantly by 2025, with BlackRock's entry as a key milestone. Traditional financial figures like Larry Fink recognize crypto as financial infrastructure, believing it has real value and a high probability of future price increases. While traditional finance's embrace of cryptocurrencies is motivated by profit, the fundamental reason is that blockchain can address the challenges of fast transactions, low costs, high transparency, and strong security, potentially mitigating the lack of transparency seen during the 2008 financial crisis. Cryptocurrencies have emerged from ordinary people, not Wall Street, and are not regulated by traditional regulations. This has led many senior practitioners at large financial institutions to adopt a conservative and evasive approach, missing out on the trend. The goal of traditional finance is to allow stablecoins to purchase traditional assets like bonds and stocks in their native digital form. The related infrastructure is built on Ethereum, and practitioners are genuinely excited about the technology reshaping financial infrastructure, not the fantasy of Bitcoin replacing the US dollar. There will be crypto chokeholds in 2023-2024, making it difficult for crypto companies to secure banking partnerships. However, rather than selling assets, practitioners are persisting in development, confident that technological innovation will not be completely blocked by politics. Furthermore, crypto can provide a source of truth in the AI ​​era, and they are optimistic about the prospects of Ethereum combined with Layer 2. The US government's stance on crypto has undergone a 180-degree shift in just one year, with the GENIUS Act being a key turning point. The Hamilton Plan will first clarify the regulatory framework for stablecoins, starting with short-term Treasury bonds, and then promote the integration of stablecoins with traditional financial products. Crypto can be integrated with traditional finance, using smart contracts to maintain the transparency of SEC disclosures while reducing the costs of traditional financial document processing and listing. Crypto is the next key step in Wall Street's technological transformation, driving greater efficiency and lower costs in finance. Crypto ETFs are successful products, but they contradict the concept of decentralized cryptocurrency custody. Currently, Bitcoin ETFs hold 7% of the total Bitcoin supply, and large institutions like pension funds and sovereign wealth funds have yet to enter the market on a large scale. Four major drivers may drive the crypto industry over the next five years: the influx of 401k funds, young people's dissatisfaction with traditional returns, the convergence of AI and crypto, and wealth transfer. Over the next five years, the US Treasury and the Federal Reserve will collaborate more effectively, which will benefit crypto assets and accelerate the convergence of AI and crypto. Short-term risks include the liquidation of treasury companies and security vulnerabilities in traditional finance. Industry infrastructure and the regulatory environment have improved, making a catastrophic decline unlikely, with a potential correction of around 30%. (I) Motivations for Traditional Financial Institutions to Enter Crypto Investment Ryan: I'd like to discuss the changes over the past five years. In 2020, as a prominent institutional asset manager in Connecticut, you bought Bitcoin, a move considered a gray area and a career risk. But by 2025, Larry Fink had publicly discussed cryptocurrencies, a Bitcoin ETF had been launched, and cryptocurrencies seemed to have invaded Wall Street. What happened in the past five years to trigger such a dramatic shift in attitude? Can you describe this process from the perspective of a core player in the industry? Eric: I believe BlackRock's entry into the market was a pivotal moment. Normally, someone of Larry Fink's age and wealth might choose to retire, but he keenly recognized the potential for crypto to disrupt the ETF industry and made the bold decision to enter. Many prominent figures in traditional finance share similar views. These savvy investors embraced cryptocurrencies because they viewed them as a crucial cornerstone of financial infrastructure, one upon which future applications would inevitably be built. Furthermore, when an asset possesses substantial value but is held by few, its price is likely to rise. Ryan: Do you think this is primarily due to a shift in thinking among traditional financial practitioners, or is it primarily due to the potential for profit through tokenization, establishing treasury companies, issuing ETFs, and so on? Eric: If traditional financial practitioners fail to see that blockchain technology can make financial transactions faster, less expensive, more transparent, and more secure, then they won't act even if there's a profit opportunity. Many financial crises throughout history have been caused by either inefficient transactions or a lack of transparency. Counterparties couldn't determine each other's solvency, and even many companies themselves didn't have a clear understanding of their own balance sheets. Blockchain technology and cryptocurrencies offer solutions to these problems. Therefore, the fundamental reason for traditional finance's acceptance of cryptocurrencies is the solid value of the technology itself. Ryan: Overall, has traditional finance generally recognized that cryptocurrencies are here to stay and will become a significant sector, requiring financial institutions to adjust their strategies to adapt and develop crypto-related policies? Eric: A key characteristic of the crypto market is that it's the first financial innovation to emerge from ordinary people, not from Wall Street. Looking back at the crypto industry's development, the frustration and resistance from traditional financial practitioners stems largely from its origins outside of Wall Street. From the outset, it wasn't regulated by traditional regulatory frameworks. As a result, senior and highly qualified professionals within large financial institutions have largely adopted a conservative and evasive approach to crypto, missing out on this massive trend. (II) Traditional Finance's Understanding of Cryptocurrency Ryan: From roughly 2016 to 2020, we thought traditional finance was beginning to understand cryptocurrency. However, that era focused solely on blockchain, not Bitcoin. At the time, I felt that traditional finance had completely misunderstood. They viewed cryptocurrency as simply a database or open ledger technology, but it's far more profound. Now, in the second wave of institutional adoption of cryptocurrency, do they truly understand it? Eric: I don't think most traditional finance practitioners consider cryptocurrencies to be money. The core reason traditional finance is finally understanding cryptocurrencies is that they see stablecoins as a killer app. Traditional finance practitioners don't believe Bitcoin will replace the dollar or become the next-generation payment system. They value the instrumental qualities of crypto: faster, cheaper, more secure, more transparent, and the ability to enable programmable money that can be pegged to sovereign currencies like the dollar, pound, and euro. Only a very small minority of traditional finance practitioners believe Bitcoin will dominate the world, but this perception is actually healthy for the industry. Governments accumulate power and rarely voluntarily give it up, and money creation is one of their core powers. Even now, I believe governments have the ability to prevent Bitcoin from replacing the dollar. Today, smart people in the industry have found a way to integrate crypto into the financial system, namely, stablecoins pegged to the dollar. With the passage of the GENIUS Act (the "National Innovation Act to Guide and Establish a United States Stablecoin"), stablecoin transaction volume has even surpassed that of Mastercard or Visa. After stablecoin regulations became clear, we've been working towards enabling stablecoins to purchase all traditional assets, including bonds, stocks, and commodities. These assets will be issued in a native digital form, rather than simply attaching a token to a paper-based database system. Traditional financial practitioners are truly excited about the prospect of this technology reshaping financial infrastructure, not the fantasy of Bitcoin replacing the US dollar. (III) Shifting Government Regulatory Attitudes Ryan: During the dark period of 2023-2024, Operation Crypto Chokehold shut out crypto companies from banks, and the US administration was completely hostile to cryptocurrencies. What were you thinking during that difficult time? Eric: Operation Crypto Chokehold 2.0 was real. After OneRiver was acquired by Coinbase, we tried to leverage all our traditional financial connections to build banking partnerships and secure credit lines, but we were repeatedly blocked. This excessive government intervention completely violates ethical and democratic principles. But I never thought about selling my assets and leaving. Instead, I have been insisting on building. My belief that encryption technology will eventually replace traditional financial infrastructure has never wavered. Throughout human history, technological innovation has never been completely blocked by politics. I know this road will be difficult, but technology is always on our side. For example, all financial infrastructure in the future will eventually be built on Ethereum. Combined with technologies such as Layer2, more reliable and anti-fragile applications will be born based on this infrastructure. In the AI ​​era, encryption technology can also provide a source of truth to help us distinguish what is real, what is credible, and what is the truth.

Ryan: During that time, I was surprised by the depth of the US government's hostility towards cryptocurrencies, but this attitude changed 180 degrees in just one year. What do you think is the most significant event in government regulation in the past 12 months? For example, the GENIUS Act was signed, crypto companies are no longer denied service by banks, and the US government has officially declared itself the capital of cryptocurrency. There's also the crypto initiative launched by the US Securities and Exchange Commission (SEC) under the leadership of Paul Atkins, and the asset tokenization promoted by SEC Commissioner Hester Pearl. Which of these positive developments is most important to you? Eric: The current SEC chairman and the crypto initiative are both excellent. The US didn't have such a mechanism before. When we first entered crypto, we saw it as a macro trading target, but existing DeFi applications struggled to scale to the mainstream market. So, we built an infrastructure that could legally issue digitally native securities and gain regulatory acceptance. This infrastructure was originally called OneBridge (for connecting crypto and traditional finance), but was later renamed Project Hamilton. We invited former SEC Chairman Jay and current Trump administration member Kevin to join our board of directors. My initial idea was to issue complex digitally native securities, but Jay suggested starting with the simplest, short-term Treasury bonds, which are boring but safe. He believes 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 instruments. Once the financial system builds confidence and sees returns, they can gradually expand to complex securities. The GENIUS Act is the first critical step in this process. (IV) The Optimal Integration of Crypto and Traditional Finance Ryan: In the tokenized world, there's insufficient disclosure, and in traditional finance, information lags, requiring extensive paperwork. Furthermore, listing fees for a treasury company on the Nasdaq or NYSE can reach tens of millions of dollars. Smart contracts, however, can digitize all of this, preserving the transparency of SEC disclosures while leveraging technology to reduce costs. Do you think this optimal integration is possible? Eric: Absolutely possible, and that's our direction. The convergence you describe is essentially about crypto empowering the traditional financial system, not disrupting it. The core reason the US capital market is the deepest and most liquid in the world lies in its robust regulatory framework: investors trust that the government won't arbitrarily confiscate their assets, regulators provide a backstop in the event of disputes, and fair courts resolve lawsuits. Without these, a deep, liquid market would be impossible. The crypto industry won't abandon these advantages; rather, it aims to make them more efficient. For example, the tens of millions of dollars in IPO costs you mentioned are clearly unreasonable and will never be the case in the future. Smart contracts, in financial structure design, allow all disclosure documents to be embedded or linked to them, saving computing and storage costs while ensuring transparency. While some law firms will undoubtedly be dissatisfied with reduced fees in the future, no industry in financial history has invested more in technology than financial services. For decades, Wall Street has been transforming the industry with technology: transaction speeds are increasing while costs continue to fall. Crypto is simply the next key step, pushing this efficiency and cost-effectiveness to new heights. The optimal combination you describe is the future of finance. (V) Crypto Assets' Potential for Growth in the Next Five Years Ryan: Let's talk about ETFs, a successful example of the integration of traditional finance and cryptocurrency. How do you view the impact of crypto-native ETFs on traditional financial markets? What impact do these ETFs have on the crypto market and traditional finance, respectively? Eric: Crypto ETFs are indeed extremely successful products, but they run counter to the decentralized custody and anti-centralization principles of cryptocurrency, yet their scale is astonishingly large. Currently, Bitcoin ETFs hold 7% of the total Bitcoin supply. However, from my perspective, truly large institutions, such as large pension funds, endowments, insurance companies, and sovereign wealth funds, have yet to enter the market on a large scale. The large institutions I've primarily worked with throughout my career have yet to truly engage with cryptocurrencies. They missed the opportunity and are now facing significant learning pain. In 2021, many top global institutions established digital asset working groups to explore how to enter the market. But then the crypto bear market hit, and these institutions completely halted all plans. Now that cryptocurrencies have returned to their highs, they simply haven't had time to build a position. For these professional investors, the first step now is to invest in infrastructure and in crypto venture capital, rather than directly buying cryptocurrencies. This is a good thing for the market, however, as it clearly shows who will buy in at higher prices in the future. These institutions will gradually enter the market, perhaps first increasing infrastructure investment, and eventually holding a certain amount of crypto tokens. They won't replace the dollar, but rather become part of the currency backing, like gold or other commodities. These narratives will ultimately attract more large institutions to enter the market at higher prices, so the current absence of institutions makes the future more exciting. Ryan: How high do you think the prices of crypto assets like Bitcoin and Ethereum can rise? Where 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 like that might not be the case, but at the time, my judgment was that it would take about 10 years to fully clarify the misunderstandings surrounding crypto assets. It would also take another 10 years to build the infrastructure and eliminate friction in accessing crypto assets. In 10 years, the valuation logic for crypto assets will converge with other assets in the economy. We're currently midway through this 10-year cycle, as the industry is undergoing significant developments, including the passage of stablecoin legislation and the progress of subsequent steps like putting traditional assets on-chain. The core logic of the crypto market is supply and demand, but structural frictions still exist. For example, Trump recently signed an executive order allowing 401(k) plans to allocate crypto assets. This means that buyer entry friction will continue to decrease, leading to a continuous inflow of funds and price increases. More importantly, the crypto market is reflexive. For example, Bitcoin's value has no fixed anchor, and there's currently no mature valuation model. Over the next five years, multiple themes will drive the crypto market: first, the influx of 401k funds; second, income inequality. Young people, dissatisfied with the 7% annualized returns of traditional index funds, are increasingly pursuing crypto assets that offer 100x returns; third, the convergence of AI and crypto. AI requires crypto technology to verify authenticity, and high-speed financial interactions between AI agents also require encrypted payment systems; and fourth, the transfer of wealth from baby boomers to younger generations. These combined themes could lead to extreme market fluctuations. From a probabilistic perspective, I believe there's a 25% chance that Bitcoin will experience a bubble-like surge over the next five years, with reduced entry friction and an influx of passive funds driving a significant price surge. There's a 50% chance that Bitcoin will fluctuate between $50,000 and $250,000; and a 25% chance that it will fall below this range, possibly due to unforeseen risk events, but this probability is likely lower. Ethereum is more of a transactional asset. Higher Ethereum prices increase on-chain transaction costs, forcing technological innovations like Layer 2 to reduce costs. This, in turn, could suppress Ethereum's price, leading to more pronounced price fluctuations. (VI) Macro Trends in Crypto Investment over the Next Five Years Ryan: Do you think crypto treasury companies are bullish or bearish for the market? Are there any risks? Eric: I believe these treasury companies are unhealthy in the long run, but they are still in their early stages and haven't caused any substantial harm. Vitalik's previous answer to this question was very insightful. He believes these companies are essentially creating a hybrid of options and derivatives based on crypto assets. Wall Street tends to financialize, leverage, and amplify any asset. Currently, these treasury companies have begun using various tools to leverage, and this has proven 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. Moreover, if the market experiences a 30% correction, the high leverage could trigger a chain reaction of liquidations, further damaging the credibility of the underlying crypto assets. However, these companies are still small in scale and have not yet posed a systemic risk. Ryan: Returning to the 10-year crypto investment cycle you mentioned, five years have already passed. In the remaining five years, what definitive macro trends do you believe will support crypto assets? Which trends are you willing to bet on? Eric: First, the coordination between the US Treasury and the Federal Reserve will become more pronounced and public. When debt levels are excessive and interest payments are determined by the Fed's policies, the government has a strong incentive to integrate fiscal and monetary policies. The core logic behind this coordination being beneficial to crypto assets is fiscal dominance. Faced with massive debt, the government will choose moderate inflation to dilute the debt: by stimulating rapid economic growth while maintaining low interest rates, it is essentially taxing savers. A low real interest rate environment has traditionally been very favorable for non-yielding risky assets like crypto assets, and this trend will continue. Second, the integration of AI and crypto will accelerate, a technological resonance rarely seen in economic history. AI has the potential to significantly boost productivity in the US and globally, enabling the economy to operate in a high-growth, low-interest environment and creating conditions for inflationary debt dilution. At the same time, AI requires cryptographic technology to verify content authenticity, such as using blockchain to authenticate videos and data. High-speed financial interactions between AI agents also require intermediary-free encrypted payment systems. This complementary technology will significantly increase actual demand for crypto assets. Furthermore, the compliance innovations initiated by the GENIUS Act will continue to advance. The on-chain integration of traditional assets and the widespread adoption of stablecoins will gradually reduce friction in the use of crypto assets. These are all long-term positive factors supporting the crypto market. Ryan: But all this seems too clear and simple, raising concerns about whether we're overlooking risks. What risks could potentially derail current optimistic expectations? Eric: There are two main short-term risks: First, the liquidation risk of highly leveraged treasury companies. If a treasury company is too large and overleveraged, a 30% market correction could trigger a chain reaction of liquidations, 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 could become a risk point in two to three years. Secondly, there are security vulnerabilities after the entry of traditional finance. As traditional financial institutions enter the crypto space, if some of them build their own infrastructure without paying attention to security, they could trigger large-scale hacker attacks or asset theft, further undermining market confidence. Overall, the crypto market is bound to experience a correction of around 30% over the next five years, but the probability of a catastrophic decline is very low. The current industry infrastructure, regulatory environment, and institutional acceptance are far superior to those of previous cycles. (This article is for reference only and does not constitute any investment advice.)