Crackdowns by regulators could pop the crypto bubble and mean bitcoin is unsuitable for professional investors, says UBS

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China is increasingly cracking down on bitcoin.

  • Crackdowns by regulators make bitcoin unsuitable for pro investors and could pop the bubble, UBS said.
  • The bank pointed to China clamping down on mining, and the growing concern over crypto in the UK and US.
  • It also said the common practice of trading crypto with leverage is likely to draw regulators’ attention.
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Regulatory crackdowns could pop bubble-like crypto markets and mean bitcoin is unsuitable for professional investors, Swiss banking giant UBS has warned its clients.

In a note sent out last week, UBS’ global wealth management team said China’s latest crackdown had hurt crypto prices and operators. It also said there were signs that tougher rules could be in the pipeline in Western markets such as the US and UK.

“Regulators have demonstrated they can and will crack down on crypto,” the note read. “So we suggest investors stay clear, and build their portfolio around less risky assets.”

It added: “We’ve long warned that shifting investor sentiment or regulatory crackdowns could pop bubble-like crypto markets.”

Read more: The top US portfolio manager at $2 trillion Amundi explains why bitcoin and ether won’t play a bigger role in the financial system in 10 years than they do now – and says a regulatory storm is coming for crypto

UBS’ warning to clients said a number of recent regulatory developments were a concern for cryptocurrencies.

China renewed its restrictions on the computing process known as cryptocurrency “mining” in June, with authorities in Sichuan province closing down numerous sites.

In the US, Boston Federal Reserve’s president Eric Rosengren said stablecoin Tether was one of the “financial stability challenges” it is watching. And the UK’s Financial Conduct Authority banned crypto exchange Binance from operating in the country.

UBS’s note added: “Crypto trading practices, such as extending 50X or 100X leverage, appear fundamentally at odds with mainstream finance regulation.”

The Swiss bank’s concern about cryptocurrencies is shared by many other lenders. Goldman Sachs analysts in May said bitcoin is “not a suitable investment” and listed concerns about its volatility and lack of cash flow.

However, Wall Street is divided on cryptocurrencies – as are banks themselves. Goldman Sachs, for example, relaunched its crypto trading desk this year to take advantage of the crypto boom, in spite of its reservations.

UBS said in its note: “While we can’t rule out future price gains in cryptos, we see this as a speculative market that poses significant risks to professional investors.”

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Tighter regulation will boost cryptocurrencies by tackling ‘unholy’ activity, a finance law professor says

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Regulators are paying close attention to the crypto world.

  • Regulation will boost crypto by weeding out “unholy” criminal activity, a law professor has said.
  • Emilios Avgouleas said tougher rules may be bad for crypto prices in the short run, however.
  • China is among the states cracking down on bitcoin, while the US’s SEC is taking a close interest.
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Tighter regulation of cryptocurrencies will benefit the industry in the long run by tackling “unholy” criminal activity and making digital tokens more legitimate, a finance law professor has said.

Yet, regulations may hit the value of cryptocurrencies such as bitcoin in the short term, Professor Emilios Avgouleas, chair of international banking law at the University of Edinburgh, told Insider.

“In the short run, regulation may be a bad thing, because market prices will go down,” Avgouleas said. “But at the same time regulation will weed out unholy activity and will make these alternative means of payment even more acceptable for the mainstream user.”

He said he believes that, “in the long run, it will make the shift away from government money, to digital means of payment, permanent.”

Avgouleas, who is also a senior research fellow at crypto technology company IOHK, also said that central banks’ plans to create their own digital currencies should legitimize cryptocurrencies in the eyes of consumers.

Read more: Millennials are adding crypto to their retirement funds, but they could lose it all if the market sours. Two experts break down how to get the returns, but without the risks from digital assets

Regulators around the world are increasingly paying attention to cryptocurrencies, which boomed in the early months of 2021 before tumbling in May and June.

China has already begun a crackdown on bitcoin “mining” and payments. In the US, the new SEC chair Gary Gensler has spoken numerous times about how he feels there are gaps in the rules covering crypto.

Internationally, the world’s top banking regulator has said that financial institutions holding bitcoin or crypto should have to follow tough rules to make sure their exposure doesn’t cause financial instability.

Avgouleas said regulatory efforts should make cryptocurrencies more reputable and make it harder for criminals to use them. He said people want to know they’re transacting with something that’s “ethical and not used by the mafia.” Regulation will solve that, he added.

The recent regulatory crackdown in China has hit bitcoin hard, however, contributing to its tumble from $65,000 in April to half that in June. Chinese authorities have warned banks against facilitating bitcoin payments, presenting a potentially significant barrier to global adoption.

Some doubt that cryptocurrencies, which are often much slower than traditional digital payments, will ever be widely used for transactions. New York University professor Nouriel Roubini has said the Flintstones “had a better monetary system than bitcoin.”

Yet, Avgouleas said he’s bullish about the prospects of cryptocurrencies, believing they could become widely used around the world as they’re private, secure and international.

Avgouleas is unsure which cryptocurrencies may become the most popular in the future. But he said the billions of dollars that have been invested in the crypto world is likely to mean that “what is not fast and scalable today, would be super-fast and super-scalable tomorrow.”

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South African regulator says it’s powerless over suspected $3.6 billion bitcoin scam, as crypto is out of its reach

Bitcoin Bubble
Bitcoin replica coins are seen on November 13, 2017

  • South Africa’s regulator said it’s powerless to act on a suspected $3.6 billion bitcoin scam.
  • Two brothers who founded Africrypt appear to have gone missing, along with bitcoin worth billions.
  • South Africa’s FSCA said the company appears to be a Ponzi scheme designed to defraud investors.
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South Africa’s financial services regulator has said it can’t take any action over a suspected scam that lawyers say has caused as much as $3.6 billion worth of bitcoin to go missing.

The country’s Financial Sector Conduct Authority said Thursday that Africrypt, the company linked to the lost holdings, looks like a Ponzi scheme set up to defraud investors.

Yet the FSCA said that as cryptocurrencies are not regulated financial products or services in South Africa, it is powerless to do anything in this case.

“At this stage we have only found evidence of crypto asset transactions,” it said in a statement. “Currently crypto assets are not regulated in terms of any financial sector law in South Africa and consequently the FSCA is not in a position to take any regulatory action.”

Africrypt was created by brothers Ameer and Raees Cajee in 2019, and based in Johannesburg in South Africa.

According to a police statement seen by Bloomberg, the company promised high returns of up to five times principal investments.

Yet Hanekom Attorneys, the lawyers for the affected investors, now say that the brothers – and as much as $3.6 billion of bitcoin – have vanished, in what they describe as a “heist”. Insider was unable to contact the crypto company, whose website is down.

The FSCA said: “This entity was offering exceptionally high and unrealistic returns akin to those offered by unlawful investment schemes commonly known as Ponzi’s.”

“The public is urged to understand that unrealistically high returns suggests that the investment scheme is likely to be fraudulent,” it added.

Africrypt’s apparent closure, and the inability of regulators to deal with it, raises fresh concerns about the safety of cryptocurrency investments around the world.

Crypto markets are currently largely unregulated. Watchdogs have routinely warned that investors should be prepared to lose all their money.

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Bitcoin is speculative, bad for the planet, and often used for crime, the Bank for International Settlements says

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Central banks are keeping a close eye on bitcoin.

  • Bitcoin is a speculative asset that is used for crime and is bad for the planet, the BIS has said.
  • The international organization said bitcoin has “few redeeming public-interest attributes.”
  • Regulators and central banks are paying increasing attention to bitcoin and cryptocurrencies.
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Crypto tokens such as bitcoin are speculative assets rather than currencies, are often used for crimes such as money laundering, and waste energy, the Bank for International Settlements has said.

Bitcoin “has few redeeming public interest attributes,” the BIS said on Wednesday, in a chapter of its annual economic report. The BIS is an international organization that acts as a central bank for central banks and aims to foster global financial cooperation.

“By now, it is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes.”

The report continued: “Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint.”

Research by Cambridge University has found the bitcoin network – which is secured by vast amounts of computing power – uses around the same amount of energy each year as the Netherlands.

Regulators and central banks are paying more and more attention to cryptocurrencies, which they broadly see as dangerously volatile. Earlier in June, a top banking regulator, based at the BIS, advocated for the toughest possible rules for banks holding crypto.

Wednesday’s BIS report looked at the case for central bank digital currencies, and also took aim at stablecoins and the growing dominance of a select few tech firms over digital payments.

“Innovations such as cryptocurrencies, stablecoins and the walled garden ecosystems of big techs all tend to work against the public good element that underpins the payment system,” it said.

The report said stablecoins – crypto tokens that are backed by reserve assets – “have the potential to fragment the liquidity of the monetary system.” But it said their reliance on traditional assets means they’re “not a game changer.”

The BIS said the growing dominance of a few tech firms is perhaps the biggest danger to the safety and smooth functioning of global payment systems. It said the firms’ rising market power could keep costs high, cause data protection issues, and freeze some people out.

Central banks are increasingly working on their own digital currencies. Although these projects have coincided with the crypto boom, central bankers say they are more concerned about private payment systems becoming too big to fail.

Huw van Steenis, chief advisor to the CEO of Swiss bank UBS, told Insider in May: “If you think about the pandemic, it’s probably fast-forwarded the shift away from cash to digital by about three to five years.”

He added: “No central banker ever wants to feel they might lose control of their currency.”

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Bitcoin is unlikely to face any new SEC rules this year, based on the watchdog’s work plan

Gary Gensler, SEC Chairman, financial regulator, alone, testifying
Gary Gensler’s SEC has increased its focus on cryptocurrencies.

  • The SEC has released its rulemaking agenda for the year – and bitcoin isn’t on there.
  • Cryptocurrencies fall into something of a regulatory grey area, SEC chief Gary Gensler has said.
  • Congress needs to take the lead in regulating bitcoin and crypto exchanges, according to Gensler.
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The US markets regulator has released its agenda for the year – and bitcoin isn’t on there.

Regulators at the Securities and Exchange Commission will be focused on short-selling, special purpose acquisition companies or SPACs, and the “gamification” of retail investing, among other topics.

But the SEC is not planning any new rules on cryptocurrencies, according to its agenda, released Friday, despite signs that it is keeping a close eye on bitcoin and other digital tokens.

SEC boss Gary Gensler has said that investors in cryptocurrencies need more protection, given that the crypto world is currently largely unregulated.

Yet he has also said that cryptocurrencies fall into something of a grey regulatory area. One issue is that the SEC makes rules for securities, but does not consider bitcoin to be one.

The SEC chairman in May pushed Congress to kick off the process of creating regulations for cryptocurrencies and crypto exchanges.

“There’s a lot of authority that the SEC currently has in the securities space, and there are a number of cryptocurrencies that fall within that jurisdiction,” Gensler told lawmakers.

“But there are some areas, particularly bitcoin-trading on large exchanges, that the public is not currently really protected.”

However, the SEC has been keeping close tabs on bitcoin and cryptocurrencies. It has warned of the dangers of investing in funds that focus on bitcoin futures, for example, and Gensler has spoken publicly about crypto assets several times.

And there are signs that lawmakers themselves are beginning to take digital currencies more seriously. Senator Elizabeth Warren last week called for a crackdown on “environmentally wasteful cryptocurrencies” like bitcoin in order to help fight the climate crisis.

Even though bitcoin doesn’t feature on the SEC’s rulemaking agenda, the markets regulator’s planned focus on “gamification” could touch upon cryptocurrencies, which retail investors trade on platforms such as Robinhood.

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SEC tells investors to be wary of bitcoin futures due to volatility and fraud, as regulators ramp up crypto scrutiny

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Gary Gensler heads the Securities and Exchange Commission.

  • The SEC warned investors over bitcoin futures, saying the cryptocurrency is volatile and speculative.
  • It also said the market lacked regulation and had the potential for fraud and manipulation.
  • Regulators around the world are stepping up their scrutiny of the market as bitcoin booms.
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The US market regulator has warned investors about investing in funds with exposure to bitcoin futures, saying the market is volatile, unregulated and has the potential for fraud.

The Securities and Exchange Commission released a notice on Thursday urging those considering bitcoin futures funds “to weigh carefully the potential risks and benefits of the investment.” The notice was issued with the Commodity Futures Trading Commission.

“Among other things, investors should understand that bitcoin, including gaining exposure through the bitcoin futures market, is a highly speculative investment,” it said.

“As such, investors should consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying bitcoin market.” Futures are contracts that allow people to speculate on the future bitcoin price.

Regulators are stepping up their focus on bitcoin and other cryptocurrencies, which boomed in the first five months of the year before falling sharply in May.

Bitcoin traded at around $37,500 on Friday, around 42% below April’s record high, giving a sense of the volatility of the asset. Heightened scrutiny from Chinese regulators is one factor in bitcoin’s recent decline.

The SEC’s warning followed the suggestion from the top global banking regulator for tough new rules for financial institutions that have exposure to bitcoin.

Rule-makers and central banks have been warning for months about the dangers of cryptocurrencies because of growing concern that investors could get burnt in the bitcoin boom.

Analysts have said that the SEC’s concerns about the dangers of bitcoin investments make it unlikely that the regulator will approve crypto exchange-traded funds any time soon.

Osprey Funds founder Greg King told CNBC on Monday he thinks a bitcoin ETF in the US could come in 2022.

King, who plans to launch a bitcoin ETF in the US, said: “Personally, I think if something happens, it’s more likely in 2022. It’s just really getting going. These things take time.”

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The CEO of DraftKings says he’s looked into adding crypto as a form of payment, but regulations are preventing it

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DraftKings CEO Jason Robins onstage during the TechCrunch Disrupt SF 2018 on September 7, 2018 in San Francisco.

  • DraftKings CEO Jason Robins said current regulations prevent the company from accepting cryptocurrency as payment.
  • “As of now, crypto is not an approved payment type in any of the states where we’re live,” Robins said.
  • But he added he foresees cryptocurrencies to “likely transform some entire industries.”
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DraftKings CEO Jason Robins said he has looked into adding cryptocurrencies as a form of payment for his online sports betting company but admitted that the current regulations prevented him from pursuing the matter further.

“The payment methods we can accept are determined by the individual state regulators and, as of now, crypto is not an approved payment type in any of the states where we’re live,” Robins said during a live town hall hosted by stock trading app Public Wednesday.

The chief executive added that cryptocurrencies will “likely transform some entire industries and portions of others.”

Cryptocurrency regulation – or a lack of – has been in the spotlight recently. On Tuesday, the Internal Revenue Service asked lawmakers to give the agency more authority and funding to regulate the rapidly evolving industry.

Yet, some, such as SEC Commissioner Hester Pierce, have warned that stricter rules will hurt the cryptocurrency market.

Currently, DraftKing operations vary per state depending on the service. It will likely be the same case for when it accepts cryptocurrencies.

For instance, users can play DraftKings daily fantasy sports throughout the US except in Montana, Washington, Idaho, Nevada, and Arizona, according to its website.

Meanwhile, only 10 states allow sports betting, while just four -Pennsylvania, Michigan, West Virginia, and New Jersey – permit online gambling.

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Where online gambling is legal in the US.

DraftKings in the past year has been benefitting from a wave of enthusiasm over the country’s emerging sports-betting industry. Research firm Eilers & Krejcik Gaming in February projected that sports betting would generate $5.8 billion in revenue by 2023, up from an estimated $920 million in 2019.

The Boston-based company in May reported a better-than-expected loss per share and higher revenue for the first quarter of 2021. The company, founded in 2012, also lifted its full-year revenue guidance from a range of $900 million – $1 billion to a range of $1.05 billion – $1.15 billion.

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Ransomware attacks add to bitcoin’s woes, shining a light on the use of cryptocurrencies in crime

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Critics have long highlighted bitcoin’s use in crime.

  • Ransomware attacks have turned an uncomfortable spotlight onto the use of cryptocurrencies in crime.
  • Hackers attacking the Colonial Pipeline and Ireland’s health service demanded payment in crypto.
  • One analyst said the issue will not go unnoticed by US regulators, which could step up enforcement.
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Recent high-profile cyber attacks in which hackers demanded to be paid in cryptocurrencies have turned an uncomfortable spotlight on digital tokens and their use in crime.

One analyst said the ransomware attack on the Colonial Pipeline was facilitated by cryptocurrencies, which “will not go unnoticed by the US government and other countries.”

Hackers severely disrupted the US energy network earlier in May when they attacked the crucial Colonial Pipeline’s computing systems. To get the system back up and running, Colonial paid a ransom of nearly $5 million in cryptocurrency, Bloomberg reported, citing people familiar with the matter.

Days later, hackers targeted Ireland’s health service and also demanded a ransom be paid in bitcoin.

Bitcoin has crashed in recent days after Elon Musk said Tesla would no longer accept the token as payment, due to its “insane” and environmentally damaging energy use. Cryptocurrencies slid again on Tuesday after Chinese regulators cracked down on the use of digital assets for payments.

But Jeffrey Halley, senior market analyst at currency firm Oanda, said the so-called ransomware attacks had been an underappreciated factor.

“With Elon Musk grabbing all the headlines on his bitcoin/dogecoin pivot, the real issue is the $5 million ransom paid by Colonial Pipeline,” he said.

“Attacks on critical US infrastructure facilitated by cryptocurrencies will not go unnoticed by the US government and other countries. I would argue that the regulatory threat to cryptocurrencies has increased exponentially.”

Critics of bitcoin and other cryptocurrencies have long argued that they facilitate crime thanks to their anonymous and decentralized nature, which means they are very hard to trace and link to individuals.

Treasury Secretary Janet Yellen said in January that she was concerned about cryptocurrencies for this reason. “I think many are used – at least in a transaction sense – mainly for illicit financing,” she told lawmakers during her confirmation hearing.

Gary Gensler, the Chair of the Securities and Exchange Commission markets regulator, has made similar criticisms in the past.

“Beyond use on the darknet, there are those around the globe who seek to use these new technologies to thwart government oversight of money laundering, tax evasion, terrorism financing, or evading sanctions regimes,” he told Congress in 2018.

Although cryptocurrency companies that deal with customers in the US are covered by various financial regulations, the digital asset markets is largely a grey area outside the traditional world of finance. Regulators have consistently warned that investors should only buy in if they’re willing to lose all their money.

In the US, regulators are keeping a close eye on cryptocurrencies but have not yet committed to any major rule changes during the latest digital asset boom.

Fox Business reported in April that Gensler is waiting for the Treasury to review the currency cryptocurrency rules before the SEC lays out its approach. Fox said Gensler is likely to step up enforcement action.

Regulators are likely to increase their focus on crypto as ransomware attacks become more prevalent, said Rahul Bhushan, co-founder of Rize ETF, which runs a cybersecurity fund.

Yet Bhushan said a stronger “regulatory framework around cryptocurrencies… will help legitimize that market.”

Michael Shaulov, chief executive of crypto firm Fireblocks, said: “The true solution is a capability for law enforcement agencies around the world to distribute real-time information about illicit activities allowing wallet and custody providers to block these funds in transit.”

Colonial Pipeline has been contacted for comment.

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Ray Dalio says crypto could be a victim of its own success by inviting regulation – and his comments follow tough words from watchdogs

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Ray Dalio is one of the most successful hedge fund bosses of all time.

  • Ray Dalio said cryptocurrencies could become a victim of their own success by inviting regulation.
  • The billionaire hedge fund boss’s comments follow tough words from regulators in the UK and US.
  • Dalio has said governments could get tough on crypto if it threatens their control over money.
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Billionaire hedge fund boss Ray Dalio has said the biggest risk to cryptocurrencies is their own success, which could cause governments to crack down on them to ensure they control the money supply.

Talking about cryptocurrencies, Dalio told the Wall Street Journal “Future of Everything Festival” on Tuesday: “Its own biggest risk is its success, because as a storehold of wealth no government wants to have an alternative currency.”

The comments from Dalio, the founder and co-chief investment officer of investment titan Bridgewater Associates, came soon after regulators and watchdogs in both the UK and US hinted at official skepticism of crypto assets.

Bank of England governor Andrew Bailey said last week people should only invest in crypto “if you’re prepared to lose all your money.”

And Gary Gensler, the new head of the US Securities and Exchange Commission, said in a Congressional hearing the crypto world “could benefit from greater investor protection.”

Dalio said the future of cryptocurrencies is “exciting and unknown.” He added: “Crypto as a digital clearing mechanism and so on, very exciting, very bullish. Crypto as a storehold of wealth, very interesting. Probably will be important for us.”

But he said he remained concerned that governments could get tough on crypto if they feel their monetary sovereignty is threatened, something that he has talked about in the past.

Regulators around the world are increasingly focused on cryptocurrencies after bitcoin’s meteoric rise, with Turkey banning the use of crypto assets for payments and India flirting with an outright ban.

US regulators have not so far announced any plans to tighten crypto regulations, although some analysts have said that Gensler’s stance makes the approval of a bitcoin exchange-traded fund unlikely any time soon.

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Bitcoin’s path to $100,000 is less important than its potential impact on the corporate world over the next decade, Wedbush says

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  • Dan Ives of Wedbush said bitcoin’s effect on the corporate world is more important than its price.
  • The analyst argued moves into blockchain tech and cryptocurrencies may surge over the coming years.
  • “Bitcoin mania is not a fad…but rather the start of a new age on the digital currency front.”
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Bitcoin’s path to $100,000 per coin is less important than its potential impact on the corporate world over the next decade, according to Wedbush.

In a note to clients on Thursday, Wedbush’s Dan Ives said that the story around bitcoin is much larger than its “potential path/timeline to $100,000.”

The analyst argued the important theme when it comes to cryptocurrencies is “the potential ramifications that crypto, blockchain, and Bitcoin could have across the technology and corporate world for the next decade.”

Ives said moves into blockchain technology and cryptocurrencies could surge over the coming years after companies like Tesla, IBM, Visa, Square, Mastercard, and more entered the fray recently.

There’s a “growing shift for companies to accept this digital currency as a form of payment,” according to the analyst.

Ives added that he still believes “less than 5% of public companies” will invest in bitcoin over the next 12-18 months but said that number could move “markedly higher” as more regulation and acceptance of the currency takes hold.

“Bitcoin mania is not a fad in our opinion, but rather the start of a new age on the digital currency front,” Ives wrote.

Although Ives was one of the first to the party, his comments about cryptocurrencies and their regulation are becoming more in sync with other Street commentators and even CEOs as cryptocurrencies and blockchain technologies continue to develop.

David Solomon, the CEO of Goldman Sachs, said his bank is looking into ways to support clients’ desire to own cryptocurrencies and other digital assets in a CNBC “Squawk Box” interview on Tuesday.

The CEO added that he believes there will be a “big evolution” in the way the US government regulates digital assets in the coming years.

Ives and his team also highlighted the potential of using blockchain technology for decentralized storage in their note to clients on Thursday.

The analyst said blockchain technology can help increase the overall speed and lower the price of digital storage moving forward. He noted, “there are a number of business models attacking this new market opportunity with privately-held Filecoin one of the more impressive strategies we have seen in the market.”

As far as Wedbush is concerned, Bitcoin isn’t going away anytime soon, rather it’s set to become “mainstream” and the effects on Wall Street and the corporate world will be huge.

Coinbase’s 840% revenue jump in the first quarter may be the perfect example of what Ives is talking about.

Coinbase posted $1.8 billion in revenue in its first-quarter report. That means the crypto exchange pulled in over $120 million more than Intercontinental Exchange, the company that owns the New York Stock Exchange, did in its most recent earnings report.

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