Bitcoin surge spurs City to recruit crypto natives

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Estab­lish­ments sur­vive by assim­i­lat­ing use­ful upstarts and exclud­ing dan­ger­ous ones. This is the theme of Vic­to­ri­an nov­els where self-made entre­pre­neurs became MPs and Amer­i­can heiress­es mar­ried dukes. It is also a trend in finan­cial services.

The val­ue of unreg­u­lat­ed cryp­tocur­ren­cies has soared to an esti­mat­ed $2.8tn. Reg­u­lat­ed banks, fund man­agers and con­sul­tants are estab­lish­ing or expand­ing fledg­ling dig­i­tal asset operations.

The City of Lon­don and Wall Street are wrestling with the fear of miss­ing out. This gives work­ers in the unreg­u­lat­ed cryp­to busi­ness a route into “Trad­Fi” or tra­di­tion­al finance.

An expe­ri­enced can­di­date can com­mand a base salary of £150,000 to £200,000 a year plus bonus, said Robert Lycett, a direc­tor of M‑Wek, a Lon­don recruit­ment con­sul­tant. A blockchain pro­gram­mer can expect £200,000 to £250,000 annu­al­ly. Tem­po­rary staff earn up to £1,500 a day. Even “a tal­ent­ed and enthu­si­as­tic [cryp­tocur­ren­cy] hob­by­ist will get a job”, Lycett added.

One scep­ti­cal response would be that banks and bro­kers are staffing up on the strength of an ephemer­al high in bit­coin. The flag­ship cryp­tocur­ren­cy is volatile, pol­lut­ing and some­times used for ille­gal pay­ments. It accounts for about two-fifths of the esti­mat­ed val­ue of cryp­tos. The world is in a broad­er asset bub­ble. When this deflates, bit­coin could eas­i­ly col­lapse.

Rich clients would then stop crit­i­cis­ing wealth man­agers for refus­ing to deal in bit­coin or advise on it. Boss­es crit­i­cal of bit­coin, such as JPMor­gan Chase’s Jamie Dimon, would feel vindicated.

Record highs for bit­coin are only part of the sto­ry, though. Bankers say they are invest­ing in dig­i­tal asset exper­tise for defen­sive rea­sons. They do not expect to ever set up oper­a­tions trad­ing in unreg­u­lat­ed cryp­tos. They do envis­age one day trad­ing tokenised stocks and bonds approved by reg­u­la­tors. “If you aren’t ready to go on Day One, it will be too late,” said a contact.

The dis­trib­uted ledger tech­nol­o­gy that under­pins cryp­tocur­ren­cies could make reg­u­lat­ed trans­ac­tions faster, cheap­er and more sophis­ti­cat­ed. Big banks have been exper­i­ment­ing for years. They have had lit­tle impe­tus to plunge in wholesale.

There are three rea­sons. First, banks have poured huge cap­i­tal expen­di­ture into lega­cy sys­tems that they have no inter­est in dis­rupt­ing. Sec­ond, there is no reli­able legal or reg­u­la­to­ry frame­work for deal­ing in dig­i­tal assets. Third, there is a “col­lec­tive action prob­lem” — the syn­drome where­by tele­phones are use­less unless many peo­ple install them.

Instead, it has been left up to bit­coin­ers to show that a dig­i­tal asset can be wide­ly held and exchanged, albeit some­times unre­li­ably and dis­rep­utably. Bit­coin may there­fore prompt the intro­duc­tion of gov­ern­ment-sanc­tioned dig­i­tal cur­ren­cies. Chi­na already has a lim­it­ed ver­sion of this. EU cen­tral banks aspire to fol­low suit. The US and UK are sit­ting on the fence.

My hunch is that if devel­oped democ­ra­cies decide to intro­duce offi­cial dig­i­tal cur­ren­cies, it would take years. Politi­cians and cen­tral bankers have lega­cy sys­tems and pow­er oli­gop­o­lies to defend too. Reg­u­lat­ed dig­i­tal assets such as tokenised stocks and bonds may become preva­lent sooner. 

In the mean­while, most reg­u­lat­ed busi­ness­es are staffing up in areas that do not involve trad­ing unreg­u­lat­ed cryp­tos or giv­ing invest­ment advice. They resem­ble the nice kid who avoids inhal­ing when passed a joint at a party.

A recent­ly launched exchange trad­ed fund from US spe­cial­ist ProShares has been described as “the first bit­coin ETF”. In real­i­ty, its expo­sure comes from reg­u­lat­ed futures. Nor can retail clients of Fideli­ty buy bit­coin through its plat­form — although they can use it to view hold­ings on Coin­base, a cryp­to exchange.

Nomu­ra, for its part, does not han­dle cryp­tos, but has a stake in a cus­to­di­an that does. Banks includ­ing JPMor­gan, Mor­gan Stan­ley and Deutsche pub­lish research on dig­i­tal assets. This is usu­al­ly obser­va­tion­al in tone, or gives rec­om­men­da­tions on shares of cryp­to businesses.

It is appar­ent that the finan­cial estab­lish­ment has ten­ta­tive­ly begun to assim­i­late parts of the cryp­to exper­i­ment that may be use­ful to it. 

Inte­grat­ing new recruits from that world will be an inter­est­ing chal­lenge for man­agers. For some new hires, cryp­tos will still embody a valid anti-author­i­tar­i­an belief sys­tem as well as a tech­no­log­i­cal solu­tion. They may take some per­suad­ing that Dimon is an indus­try thought leader, rather than — as some see him — a Trad­Fi no-coin­er atop an enti­tled assetocracy.

jonathan.guthrie@ft.com

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