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The author is the former global head of equity capital markets at Bank of America and is now a managing director at Seda Experts.
Bitcoin's dramatic rise this year has reignited a dilemma on Wall Street: how far should investment banks go in supporting cryptocurrency capital raising? Recent contributions reveal a major shift in thinking.
Not long ago, the big banks kept crypto at arm's length. The sector was notorious, and bank leaders were critical. JPMorgan CEO Jamie Dimon called bitcoin a “fraud” and a “Ponzi scheme”. The fear of control deepened the chill. Crypto deals were left to small investment banks.
But times have changed. Securities and Exchange Commission consent The bitcoin exchange rate for January 2024 marked a watershed moment. Moreover, the election of Donald Trump probably advertisers moving to a crypto-resistant SEC, unlike the skepticism under chairman Gary Gensler.
As the size of the ad swelled, so did the number of underwriters. Barclays and Citigroup have led several dynamic offers this year to bitcoin investor MicroStrategy. Goldman Sachs has raised funds for Applied Digital, a data center operator that caters to bitcoin miners. JPMorgan has underwritten convertible bonds with weighted bitcoin mining and infrastructure groups Core Scientific, Mara and Iren.
As banks debate whether to dive into space or hold back, the key question is: can you twist these deals, put out a prospectus with risky assets and call it quits? Or is it too dangerous to be associated with what many see as a part of the wild imagination?
The answer is not binary. It lies in a list that reflects each bank's risk tolerance and strategic outlook. Nor is it clear that all crypto-related companies should be treated equally. An established exchange like Coinbase may have a different risk profile to a bitcoin miner or an investment vehicle like MicroStrategy. Even for all similar companies, reputational issues differ.
Consider MicroStrategy and its founder Michael Saylor. Despite admitting wrongdoing, both settled charges of fraud with the SEC in 2000 and a tax fraud indictment with the District of Columbia attorney general in June 2024 over large sums of money. Such a pattern prompts senior management's review of consumer preferences. Apparently, Barclays and Citigroup started to associate with them.
If this all sounds familiar, it should. Take special purpose acquisition companies, or Spacs. Once dismissed as junk cars by the big banks, they were embraced by Wall Street during the 2019-2021 boom. But banks quickly withdrew in mid-2022, as reputational concerns emerged. Crypto-capital-raising has the same feeling – a flexible margin where banks chase windfall fees and market share, while looking for a reputational blowback.
The drivers of these decisions are multifaceted. The legal risk seems high. Consultants generally lose sleep over questions like, “Are we going to be judged if these tanks?” Media reviews are equally terrifying; No one wants their company in bad headlines.
But risk alone does not compel behavior. Fees are important. And in the big bitcoin markets, now they are big. More than $13bn of crypto-related convertibles have been issued in 2024, with most coming in the last quarter, according to IFR data. This translates into a payout pool that I estimate to be at least $200mm. And MicroStrategy's $21bn equity offering pays 2 percent fees to the banks involved in the sale. That kind of potential income makes popular savings sound like a luxury.
There is still an unwritten code of honor in banking. Certain businesses – such as adult entertainment – are prohibited, even if they are perfectly legal. Cannabis companies, too, have struggled to convince big-name banks to underwrite their offerings. Doubt is not caused by anger; it's pure optics. Banks know that certain businesses invite more public heat than they deserve.
But when a few banks break ranks, pressure mounts on others to follow suit. It is safe to travel as a pack; if something goes wrong, no bank is preferred. Competitive instinct also plays a role. No bank wants to explain to their managers why they missed their budget targets or fell down the league tables.
In short, participation is not a judgment in crypto, but rather gives an idea of how investment banks measure the three Rs of contract selection: risk, reward and reputation. In a process of continuous adjustment, senior leaders balance legal exposure, media coverage, regulatory risk and competitive pressures to determine where the “respectable” boundary lies. As bitcoin moves from the fringes to the mainstream, the big banks are getting more into the playing field, one deal at a time.