The U.S. federal banking watchdog hints at a shift that could change trading services. JPMorgan explores crypto trading for institutional investors. OCC guidance allows banks to engage in crypto trading services. Banks like JPMorgan, Goldman Sachs, and BNY Mellon are already making moves in the crypto space.

Experts suggest that banks moving into crypto trading will have significant market consequences. Banks could absorb retail order flow, putting pressure on stand-alone crypto exchanges. Banks’ entry into the crypto space could reshape the competitive landscape and impact retail-focused exchanges.

The OCC’s framework allows banks to profit from crypto activity with less exposure to volatility. Regulated banks can now facilitate crypto execution, potentially becoming dominant distribution channels for basic crypto exposure. Banks’ ability to perform “riskless principal” execution gives them a structural advantage over retail exchanges.

Banks’ move into crypto trading could impact U.S.-focused retail exchanges like Coinbase, Gemini, and Kraken. Wall Street’s entry into the crypto market may squeeze U.S. spot-trading and custody revenue, pushing exchanges towards derivatives and global markets. The OCC framework could shift volumes from standalone platforms to bank channels over time.

Traditional wealth management firms face pressure to offer crypto-related financial services to meet client demand. Banks entering the crypto space could help meet the needs of mainstream retail and wealth-management clients. A survey found that wealthy investors are switching managers for access to digital assets.

Experts expect banks to approach crypto cautiously, focusing on highly liquid assets like bitcoin and ether. Banks may roll out services conservatively and incrementally, partnering with crypto-native firms for liquidity and infrastructure. This competition is unlikely to be a zero-sum game, creating opportunities for partnerships in the crypto space.

The OCC’s approval for banks to engage in crypto brokerage business could transform the sector. Banks now have regulatory credibility to participate in crypto trades, posing a threat to exchange margins. The move signals a new era for Wall Street in the crypto market, with banks set to play a significant role in trading services.

Read more at Yahoo Finance: Crypto exchanges brace for pressure as banks like JPMorgan enter spot trading