Regulatory breakthroughs, institutional entry: A look back at the decade of cryptocurrency's stormy journey across Wall Street

The Institutional Crypto Cycle is Coming

Host: Ryan, Bankless

Guest: Eric Peters

Compiled and edited by Janna and 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 him on Bankless. The topic covers Eric's journey into cryptocurrency, from a gray area shunned by institutions to its current acceptance by Wall Street. It provides a historical perspective for crypto enthusiasts to understand the industry's development. ChainCatcher has compiled and edited the original content.

TL&DR:

The recognition of cryptocurrencies will increase significantly in 2025. The entry of BlackRock is a key node. Traditional financial professionals such as Larry Fink recognize encryption as financial infrastructure, believing that it has substantial value and that its price is likely to rise in the future.
Traditional finance has profit motives for accepting encryption, but the fundamental reason is that blockchain can solve the problems of fast transactions, low costs, high transparency, and strong security, and can avoid the lack of transparency similar to the 2008 financial crisis.
Cryptocurrency emerged from ordinary people rather than Wall Street and was not included in the traditional regulatory framework, resulting in senior practitioners in large financial institutions taking a conservative and evasive attitude and missing out on the trend.
The goal of traditional finance is to allow stablecoins to purchase traditional assets such as bonds and stocks in digital native form. The relevant infrastructure is built on Ethereum. Practitioners are truly excited about the technology reconstructing the financial infrastructure, rather than the fantasy of Bitcoin replacing the US dollar.
There will be crypto-choking actions in 2023-2024, and crypto companies will find it difficult to obtain banking cooperation. However, practitioners did not sell their assets but insisted on construction. They firmly believe that technological innovation will not be completely blocked by politics, and that crypto can provide a source of truth in the AI era. They are optimistic about the prospects of Ethereum combined with Layer2.
The US government's attitude towards cryptocurrencies has changed 180 degrees within a year. The GENIUS Act is a key turning point. The Hamilton Plan first clarifies the regulatory framework for stablecoins, starting with short-term Treasury bonds, and then promotes the integration of stablecoins with traditional financial products.
Encryption can be integrated with traditional finance, using smart contracts to retain the transparency of SEC disclosures while reducing the costs of traditional financial document processing and listing. Encryption technology is the next key step in Wall Street's technological transformation, promoting more efficient and low-cost finance.
Crypto ETFs are successful products but they run counter to the concept of decentralized custody of cryptocurrencies. Currently, Bitcoin ETF holdings account for 7% of the total Bitcoin supply, and large institutions such as pension funds and sovereign wealth funds have not yet entered the market on a large scale.
The crypto industry may be driven by four factors in the next five years: 401k funds entering the market, young people’s dissatisfaction with traditional returns, the integration of AI and crypto, and wealth transfer.
In the next five years, the coordination between the U.S. Treasury and the Federal Reserve will be more obvious, which is good for crypto assets and the integration of AI and crypto will accelerate; the short-term risks are the liquidation of treasury companies and traditional financial security loopholes. The industry infrastructure and regulatory environment have improved, and the probability of a catastrophic decline is low, and there may be a correction of about 30%.

(1) Motivations of Traditional Finance Entering Cryptocurrency Investment

Ryan: I want 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 has publicly discussed cryptocurrencies, a Bitcoin ETF has been launched, and it feels like crypto has invaded Wall Street. What has happened in the past five years to cause 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 is a pivotal moment. Normally, someone of Larry Fink's age and wealth would have chosen to retire. However, he keenly recognized the potential of crypto technology to disrupt the ETF industry, leading him to make the bold decision to enter the market. Many prominent figures in traditional finance share similar views. These savvy investors embrace cryptocurrencies because they see them as a crucial cornerstone of financial infrastructure, and they believe that more applications will inevitably be built upon them. Furthermore, when an asset possesses substantial value but is held by few, its price is likely to rise.

Ryan: Do you think this is mainly due to a change in thinking among traditional financial practitioners, or because profits can be made through tokenization, establishing treasury companies, issuing ETFs, etc.?

Eric: If traditional financial practitioners fail to see how blockchain technology can make financial transactions faster, more cost-effective, more transparent, and more secure, then they won't act even when there's a profit opportunity. Many financial crises throughout history have been caused by either inefficient transactions or a lack of transparency. Counterparties can't determine each other's solvency, and even many companies themselves lack visibility into their own balance sheets. Blockchain technology and cryptocurrencies can address these issues. Therefore, the fundamental reason traditional finance embraces cryptocurrencies is the inherent value of the technology itself.

Ryan: Overall, has traditional finance generally recognized that cryptocurrencies will exist for a long time and will become an important field, and financial institutions must adjust their strategies to adapt and need to develop crypto-related strategies?

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 dissatisfaction and resistance from traditional financial practitioners largely stems from its origins outside of Wall Street. From the outset, it wasn't regulated within traditional regulatory frameworks. As a result, senior and high-ranking professionals at large financial institutions have often adopted a conservative approach to crypto, missing out on this massive trend.

(2) Traditional Finance’s Understanding of Cryptocurrency

Ryan: Between 2016 and 2020, we thought traditional finance was beginning to understand cryptocurrency. But back then, the discussion focused on blockchain, not Bitcoin. I felt at the time that traditional finance had completely misjudged the concept. They viewed cryptocurrency as a simple database or open ledger technology, but it's so much deeper than that. 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 beginning to understand cryptocurrencies is that they see stablecoins as a killer app. Traditional finance practitioners don't believe Bitcoin will replace the US dollar or become the next-generation payment system. They value the instrumental properties of cryptography: faster, cheaper, more secure, more transparent, and it also enables programmable currency that can be pegged to sovereign currencies like the US dollar, British pound, and euro. Only a very small number of traditional finance practitioners believe that Bitcoin will dominate the world, but this perception is actually healthy for the industry. Governments accumulate power and rarely voluntarily give it up, and currency creation is one of the core powers of government. Even now, I still believe that governments have the ability to prevent Bitcoin from replacing the US dollar.

Today, industry experts have found a way to integrate crypto into the financial system, namely, stablecoins pegged to the US dollar. With the passage of the GENIUS Act (the "National Innovation Act to Guide and Establish a Stablecoin in the United States"), stablecoin trading volume has even surpassed that of Mastercard or Visa. Since the regulation of stablecoins became clear, we have been pursuing the goal of 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.

(3) Changes in the government’s regulatory attitude

Ryan: What were you thinking about during that dark period between 2023 and 2024, when the crypto chokehold was shutting out banks and the US administration was completely hostile to cryptocurrencies?

Eric: Crypto Strangulation 2.0 is 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 considered selling my assets and exiting the market. Instead, I persevered. My belief that crypto will ultimately replace traditional financial infrastructure has never wavered. Throughout human history, technological innovation has never been completely blocked by politics. I know the road ahead will be difficult, but technology is always on our side. For example, all future financial infrastructure will ultimately be built on Ethereum. Combined with technologies like Layer 2, this infrastructure will enable the emergence of more reliable and anti-fragile applications. In the AI era, crypto can also provide a source of truth, helping us discern what is real, trustworthy, and true.

Ryan: I was surprised by the depth of the US government's hostility toward crypto during that time, but that attitude has shifted 180 degrees in just a year. What do you consider to be the most significant regulatory events of the past 12 months? For example, the signing of the GENIUS Act, the end of bank denials for crypto companies, the official announcement that the US should become the capital of crypto, the crypto initiative launched by the SEC under the leadership of Paul Atkins, and the asset tokenization initiative promoted by SEC Commissioner Hester Pearl—of all these positive developments, which one stands out to you?

Eric: The current SEC chairman and their crypto initiative are also excellent. The US has never had such a mechanism. When we first entered the crypto space, 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 issue digital native securities in a compliant manner and gain regulatory approval. This infrastructure was originally called OneBridge (for connecting crypto and traditional finance), but was later renamed Project Hamilton. We also 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 bills, which are boring but safe. He believed the first step must be to clarify the regulatory framework for stablecoins, then integrate stablecoins with traditional financial products. Starting with the most liquid and simplest instruments, and then gradually expanding to complex securities once the financial system builds confidence and sees returns, he said. The GENIUS Act is the first critical step in this process.

(IV) The optimal combination of encryption and traditional finance

Ryan: In the tokenized world, there's not enough disclosure. Traditional finance is plagued by 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 best-of-breed world is possible?

Eric: It's entirely possible, and that's our direction. The convergence you describe is essentially 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 assets, that regulators provide a safety net in the event of disputes, and that 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 their financial structure design, allow all disclosure documents to be embedded or linked to smart contracts, saving computing and storage costs while ensuring transparency.

While some law firms will undoubtedly be unhappy with reduced fees in the future, no industry in the history of finance has invested more in technology than financial services. For decades, Wall Street has been using technology to transform the industry: transactions are becoming increasingly faster while costs continue to fall. Cryptocurrency 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) The potential for crypto assets to grow in the next five years

Ryan: Let's talk about another successful example of combining traditional finance and cryptocurrency: ETFs. 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 ideals of cryptocurrency, yet their scale has reached astonishing proportions. 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 in a significant way. The major institutions I've primarily worked with throughout my career have yet to truly engage with cryptocurrencies. They missed the boat 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, completely halting all these plans. Now that cryptocurrencies have returned to their highs, they haven't had time to build positions. For these professional investors, the first step now is to invest in infrastructure and invest in crypto venture capital, rather than directly buying cryptocurrencies.

However, this is good news for the market, as it clearly shows who will buy at higher prices in the future. These institutions will gradually enter the market, perhaps initially increasing infrastructure investment and eventually holding a significant amount of crypto tokens. This won't replace the dollar, but rather become part of the currency backing, much like gold and other commodities. These narratives will ultimately attract even more large institutions to enter the market at higher prices, so the current absence of these institutions makes the future even more exciting.

Ryan: How high do you think the price of crypto assets like Bitcoin and Ethereum can go? 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 that may not be that long, but my judgment at the time was that it would take about 10 years to fully clarify people's misunderstandings about crypto assets. It would also take another 10 years to build the infrastructure and eliminate the friction of acquiring crypto assets. In 10 years, the valuation logic of crypto assets will converge with other assets in the economy. We are currently midway through this 10-year cycle, as the industry is undergoing a lot of development, including the implementation of stablecoin legislation and the progress of subsequent steps such as the blockchainization of traditional assets.

The core logic of the crypto market is driven by 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, capital will continue to flow in, and prices will rise accordingly. More importantly, the crypto market is reflexive. Take Bitcoin, for example, its value has no fixed anchor, and there is currently no mature valuation model. Over the next five years, multiple themes will jointly drive the crypto market: first, the influx of 401(k) funds; second, income inequality. Young people are dissatisfied with the 7% annualized returns of traditional index funds and are more inclined to pursue crypto assets with 100x returns; third, the integration of AI and crypto. AI requires encryption technology to solve authentication problems, and high-speed financial interactions between AI agents also require encrypted payment systems; fourth, the transfer of wealth from baby boomers to younger people. The combination of these themes may lead to extreme market conditions.

From a probabilistic perspective, I believe there's a 25% chance of Bitcoin experiencing a bubble-like surge over the next five years, driven by reduced entry friction and an influx of passive capital, driving a significant price surge. There's a 50% chance that Bitcoin will fluctuate between $50,000 and $250,000. There's a 25% chance that the price will fall below this range, possibly due to unforeseen risk events, but this probability is likely even lower. Ethereum is more of a transactional asset. A higher price leads to higher on-chain transaction costs, which will force technological innovations like Layer 2 to reduce costs, potentially suppressing the price and making its volatility even more pronounced.

(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 term, but they are still in their early stages and haven't posed any substantial harm. Vitalik's previous response to this question was very insightful, arguing that 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. These treasury companies have already begun using various tools for leveraged operations, 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. Furthermore, if the market experiences a 30% correction, high leverage could trigger a chain reaction of liquidations, further damaging the credibility of the underlying crypto assets. However, these companies are still small and haven't yet posed a systemic risk.

Ryan: Going back to the 10-year crypto investment cycle you mentioned, we're now five years into it. In the remaining five years, what are the definitive macro trends that 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 visible and public. When the debt is too large, and the interest on that debt is 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 to dilute it through moderate inflation: 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 is expected to continue.

Second, the convergence of AI and crypto will accelerate, a technological resonance rarely seen in economic history. AI has the potential to significantly boost productivity in the United States and globally, enabling the economy to operate in a high-growth, low-interest environment and creating the conditions for inflation-driven 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, all of which are long-term positive factors supporting the crypto market.

Ryan: But all this seems too clear and simple, which makes us worry about whether we are ignoring risks. What risks could overturn the current optimistic outlook?

Eric: There are two main short-term risks. First, the liquidation risk of highly leveraged treasury companies. If a particular 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. Second, there are security vulnerabilities associated with the entry of traditional finance. As traditional financial institutions enter the crypto space, if some build their own infrastructure without prioritizing security, this could lead to 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.