For years, my wealth management company did not approve of cryptocurrency as an investment. Whenever the crypto market went up a lot, the company sent an email to remind clients that crypto has no value and doesn’t belong in an investment portfolio.

\
Not too long ago, in a client-only call, the company delivered this message:

\
“We won’t sell you crypto and don’t think you need any, but we’re comfortable with you putting 1-5% of your assets into crypto once you’re on track to meet your financial goals.”

\
Who died? What changed? Did they put some millennials on the investment committee? Did they get a nudge from Blackrock, Grayscale, or Fidelity? Are they testing the waters? Did their clients demand it?

\
Could it have something to do with my company’s relationship with Pershing, its brokerage and lending partner?

\
Pershing is a subsidiary of BNY Mellon, a huge bank. Last month, BNY Mellon announced the launch of a [digital assets custody service](https://www.bnymellon.com/us/en/solutions/digital-assets.html), its first venture into crypto.

\
Maybe the people who run my company thought it might be nice to leave the door open to crypto funds once the market turns around—not just to keep good relations with its business partner, but also because there might be some money in managing their clients’ crypto.

\
Boomers keep dying. Millennials are inheriting their assets. Gen-Z is starting to get jobs and make money.

\
Wall Street needs to keep its options open.

# Tiptoe before you jump in

*Pssh, Mark. Institutions? They’re already in!*

\
Sure, during the 2021 mania, it probably seemed like that. Microstrategy put in $2 billion. Tesla threw in another $1 billion. Mass Mutual added $100 million.

\
Big numbers.

\
Also, not reflective of reality. Most businesses and funds put $0 into crypto. Of those who put more than $0 in, a more common allocation looked something like this:

\
* Harvard put 0.035% of its endowment into crypto in 2019 (and may have sold some or all of it in late 2021).
* A Houston pension fund put 0.5% of its assets into crypto during the 2021 mania.
* In 2017, a California pension fund bought $2 million worth of shares in a bitcoin mining company (and sold them in the spring of 2021).
* The State of Wisconsin Investment Board holds $19 million in shares of crypto companies.
* This summer, a Virginia county pension fund put 1% of its portfolio into crypto lending platforms.

\
We’re talking about huge funds placing teeny-tiny bets on crypto.

\
Why don’t they put more in?

\
Because cryptocurrency is not a safe way to lose money.

# Hearts, minds, and bank accounts

Nobody wants to lose money, but it happens from time to time. Even Warren Buffett has had a down year in 2022.

\
It’s one thing to lose $50 million in the stock market. You may not win any fans, but you won’t get threats of lawsuits or politicians thumping on about bad financial decisions.

\
If you lose $50 million in the crypto market, you’re looking at pitchforks, petitions, and accusations of perfidy.

\
It’s dangerous enough to put money into speculative technology that fails a lot. Once you add the reputational and fiduciary risks, you’re going to have a hard time finding more than a handful of entities willing to touch crypto (even if their fund managers have some in their personal portfolios).

\
You might say $50 million is $50 million. Whether you lose it on stocks, bonds, crypto, or hookers, you’re talking about the same result with the same amount of money.

\
Maybe for you and me.

\
For institutions, investing in two of those things will get you in a lot of trouble. Investing in the other two might get you tax breaks or a taxpayer-funded bailout.

\
With appropriate laws, regulations, and safeguards, institutions can make those fiduciary and reputational risks disappear.

# Laws first, then money

Developers and entrepreneurs can’t push the technology to its transformational potential when they never know whether they’ll get sued, fined, or jailed for doing so.

\
Use a mixer to protect your privacy? Dutch and US authorities may freeze your funds and put your developers in jail.

\
Sell NFTs to raise money for a business venture? US regulators may wait a few years, then fine you retroactively for violating securities laws.

\
Create a new cryptocurrency? Put one on your balance sheet? Leverage the technology for payments or settlement of business transactions?

\
These are simple activities, easy to execute, and mostly harmless—but if you do them the wrong way, your government may zap you.

\
Since institutions invest in those projects and funds that back those projects, it’s kind of important to know whether those projects will get shut down by the government.

\
Without regulatory clarity about which projects risk getting zapped and on what terms, it’s hard for institutions to take big positions (or any positions at all).

\
To some extent, institutions can get some perspective from talking to people who understand the technology, know the market, and have connections with knowledgeable sources.

\
That’s not as good as precedents or legal standards to fall back on for guidance. Certainly not good enough to risk a breach of fiduciary responsibility or an embarrassing failure.

\
What needs to change?

\
They need to know the US government will shield them from crypto’s excesses and protect their opportunities to profit from its success.

# Everywhere, but especially in the US

While this is a concern everywhere, it’s particularly salient in the US.

\
The US economy makes up one-quarter of the world’s GDP and its financial markets hold most of the world’s wealth.

\
At the same time, those financial markets operate under ancient US laws and regulations that make no sense for cryptocurrencies.

\
Crypto is a security, commodity, property, and money rolled into a single technology. The problem is, the US legal system has different, conflicting laws for each function.


---

[The SEC’s Cryptocurrency Confusion](https://www.veritasanalyticsllc.com/finacial-forensics-news/2022/8/2/wall-street-journal-opinion-piece-the-secs-cryptocurrency-confusion)


***

From speaking to fund managers, I can tell you that they want to allocate to crypto but don’t know how. They’re skeptical of the asset class generally and not impressed by the pitches they’re getting from the crypto funds, but they recognize that they need a stake in the market.

\
In their words, “it’s the future.”

\
Once we get laws and regulations—even if they’re bad—institutions will have the certainty they need to manage risks appropriately, secure their clients’ assets, disclose whatever the government makes them disclose, and take whatever other steps are necessary to make money for their clients (for a small fee).

\
Whether this is good for crypto?

\
We’ll see. In 1996, Congress handed the internet to telecom companies. This decision fundamentally changed the nature of the internet, but it also led to an explosion in investment, innovation, technical progress, and adoption.

\
In 2023, Congress will pass its first crypto legislation. Then you will see institutions enter—slowly and quietly at first, then more openly as their investments start to pay off.

\
For my thoughts on what that means, read *[Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency](https://www.amazon.com/Bitcoin-Bust-Streets-Entry-Cryptocurrency-ebook/dp/B082FVNHBX/).*


***

This post is also available as an NFT on the following platforms:

* [SolType](https://soltype.io/#/soltype/EXzBdp5EBrSoYFSfqzwX8Vcb6NyFjzqnSd4JpMeoNrjq)
* [Mirror](https://mirror.xyz/0x9a6600c7B40801dda9A0Fa4E8DE7b1B99FE524a7/MTIj5cZzzxpjZWo5wEMrktWy67lMSRZsJe3YYhxOy5s)


***

Mark Helfman publishes the *[Crypto is Easy](https://cryptoiseasy.substack.com/?utm_medium=referral&utm_source=hackernoon)* newsletter. He is also the author of three books and a top bitcoin writer on *[Medium](https://medium.com/@m.helfman)* and *[Hacker Noon](https://hackernoon.com/u/MarkHelfman)*. Learn more about him in his [bio](https://markhelfman.com/bio).

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