Editor’s note: Porter is turning the Journal over to Porter & Co. analyst Justin Brill today. Justin currently sees a great opportunity in crypto and will be leading the effort to launch Porter & Co.’s crypto advisory, which will be available to Partners first… coming soon.

Here’s Justin to explain the back story…

In 2017, Larry Fink – the CEO of BlackRock (BLK), the world’s largest asset manager with $12.5 trillion under management – famously called Bitcoin “an index of money laundering.” Over the next several years, JPMorgan Chase (JPM) CEO Jamie Dimon repeatedly criticized cryptocurrencies as “pet rocks,” and Bitcoin in particular as a “fraud,” a “Ponzi scheme,” and “worse than tulip bulbs.” And as recently as July 2024, David Solomon, CEO of investment bank Goldman Sachs (GS), said he viewed crypto as “a speculative investment” and didn’t “see a real use case” for it.

But that’s not the case anymore…

Last December, BlackRock’s Fink argued in The Economist that Bitcoin and tokenized assets could grow as fast as, or even faster than, the early internet. His firm now custodies more than 800,000 Bitcoin through its iShares spot Bitcoin exchange-traded fund (“ETF”), operates the largest spot ETF for Ethereum – the second-largest crypto asset by market cap behind Bitcoin, and has built a $2.85 billion tokenized Treasury fund (BUIDL) that runs on the Ethereum blockchain.

JPMorgan now holds over $350 million across various crypto ETFs, according to its most recent filing. It has launched not one, but two, tokenized money market funds on the Ethereum blockchain. And its Kinexys blockchain platform now processes over $5 billion in daily transactions for clients including BMW, Siemens, and Mitsubishi.

Finally, Goldman Sachs just filed to launch its first Bitcoin ETF last month, and its CEO Solomon, himself disclosed in February that he now personally owns Bitcoin.

These are three of the most prominent financial institutions in the world – the largest asset manager, the largest U.S. bank by assets, and one of the most influential investment banks. And each has dramatically changed its position on crypto within the past few years.

There is a reason for this change.

At Porter & Co., we’ve generally avoided crypto-related recommendations outside of a core position in Bitcoin – not because we dismissed the technology, but because the conditions weren’t right for serious investment.

That is finally changing. And there are two big reasons why.

The first reason is the regulatory environment, which has been the single biggest obstacle for crypto investors for years.

Under the Biden administration, the Securities and Exchange Commission (“SEC”) pursued what the industry called “regulation by enforcement.” During SEC Chair Gary Gensler’s tenure, the agency brought more than 100 enforcement actions against crypto companies – including Coinbase Global (COIN), Kraken, and Binance – while declining to publish clear rules for the industry to follow.

The Federal Deposit Insurance Corporation (“FDIC”) required prior notification before any member bank could engage in digital asset activity.

The Federal Reserve issued supervisory letters discouraging state-chartered banks from offering crypto services.

The Financial Stability Oversight Council (“FSOC”) listed crypto as a potential threat to the U.S. financial system.

The practical consequences of these hurdles were severe.

In March 2022, the SEC introduced Staff Accounting Bulletin 121 (“SAB 121”), which required any institution holding crypto assets in custody for customers to record those holdings as liabilities on its balance sheet. For banks, which are subject to strict capital reserve requirements, offering crypto custody became prohibitively expensive.

As a result, when 11 spot Bitcoin ETFs launched in January 2024, not a single one had a bank as its custodian. Nearly all Bitcoin ETF custody was concentrated at Coinbase, a non-bank crypto exchange – a concentration risk that the American Bankers Association, the Securities Industry and Financial Markets Association, and the Bank Policy Institute jointly warned would leave “investors and customers, and ultimately the financial system, worse off.”

A bipartisan Congressional resolution to overturn SAB 121 passed both chambers in May 2024. President Biden vetoed it.

The net effect of all of this was to stifle the crypto industry’s development, push much of its capital and talent outside of the United States, and to keep most traditional financial institutions on the sidelines.

Each of those policies has since been reversed.