Tech
Why Wall Street Firms Are Embracing Cryptocurrencies – Tech News Briefing
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Alex Ossola: Welcome to Tech News Briefing. It’s Tuesday, February 6. I’m Alex Ossola with the Wall Street Journal. The Securities and Exchange Commission approved spot bitcoin exchange-traded funds last month. That means traditional investors can now buy and sell cryptocurrencies as easily as stocks and mutual funds. The decision is already having a big impact. In today’s episode, we hear how some Wall Street financial firms like BlackRock are embracing cryptocurrencies and cryptocurrency culture. WSJ reporter Alexandra Osipovich tells us how it’s going and what the risks are. Then some of these firms are rushing to promote bitcoin ETFs to new audiences. We learn what’s behind the growing wave of ad campaigns targeting baby boomers from WSJ reporter Patrick Coffee. But first, after years of tiptoeing into the cryptocurrency world, some big financial firms are now diving in headfirst in search of a new revenue stream. They want to attract investors and speak the language of the cryptocurrency community. WSJ reporter Alexandra Osipovich joins us to tell us more. Alex, what are some of the Wall Street firms that are embracing cryptocurrency?
Alexander Osipovich: The biggest one is BlackRock, which is the world’s largest asset manager, known for its range of low-cost index funds. It has what is now the fastest-growing bitcoin ETF. Their CEO, Larry Fink, recently gave an interview where he said he’s a big believer in bitcoin. To be fair to Mr. Fink, he used to be more skeptical. But about two years ago he says he started thinking about it more seriously and had a bit of a conversion. His company’s bitcoin ETF launched in January along with ETFs from a number of other companies that are now competing for these investors’ dollars. The other big one that’s a household name is Fidelity, but then there’s a bunch of smaller companies like Franklin Templeton, VanEck, Invesco, Valkyrie. They’re all asset managers that offer different types of investment products for regular people. A lot of them have been around for decades. What strikes me is that a lot of them had a reputation for being boring, reliable, stable Wall Street firms. But since they got into crypto through these ETF products, they seem to be trying to be more bold. For example, Franklin Templeton is a $1.5 trillion asset manager that uses Ben Franklin as its mascot. In mid-January, they changed their logo from X to Ben Franklin with laser eyes. This is a meme that is popular among bitcoin people online and shows how bullish they are on bitcoin. Then on January 17th, they unleashed this tweet storm. They said they were handing over control of account X to Franklin Templeton’s digital asset team. They posted a lot of crazy stuff that sounded a lot like crypto in baseball, very jargon-filled tweets about different blockchains and their opportunities. They used some amazing language like crypto speculation is a feature, not a bug.
Alex Ossola: Who are they trying to sell ETFs to? Because it sounds very much like, as you say, cryptocurrency inside baseball.
Alexander Osipovich: They have a kind of two-pronged marketing strategy here. On one hand, they’re targeting boomers and trying to say, hey, cryptocurrencies are safe for you. You can invest in them through these ETFs. But on the other hand, they’re trying to show the cryptocurrency subculture that, hey, we’re cool, we’re hip, we’re happening. If you want to invest money in these products, you should use ours.
Alex Ossola: What are the big Wall Street firms that are not embracing cryptocurrencies?
Alexander Osipovich: Perhaps the biggest of these is Vanguard, another huge asset manager. Vanguard runs a brokerage, and this brokerage has blocked access to bitcoin ETFs for its clients, saying they don’t align with a long-term buy-and-hold investment philosophy. JP Morgan is another interesting example. As a bank, they actually offer investors access to some crypto-related products without directly touching cryptocurrencies. However, the CEO of JP Morgan, Mr. Jamie Dimon, is personally a big bitcoin skeptic. He recently called it a pet rock.
Alex Ossola: What are some of the risks for financial companies that trade cryptocurrencies?
Alexander Osipovich: There are some regulatory risks. If you are a wealth manager, you are subject to some marketing rules. If you are a brokerage firm, there is a FINRA rule that FINRA could challenge you. FINRA actually warned that they did a review of cryptocurrency disclosures dating back to 2022 and found that a large portion of them violated a rule that prohibits false and exaggerated disclosures to the public. Also, there is a risk that in a few years, cryptocurrencies will not go anywhere and these companies will just look ridiculous.
Alex Ossola: Let’s talk about cryptocurrency culture for a second. You mentioned a little bit about how these companies are jumping into it, but how has this culture merged? How do these two communities fit together?
Alexander Osipovich: Cryptocurrencies have evolved over the years. They started out as a very libertarian anti-government, anti-Wall Street subculture. Satoshi Nakamoto, the anonymous creator of bitcoin, talked about bitcoin as a way to make payments without going through banks, and that tension still exists in cryptocurrencies today. But a lot of people who are involved in cryptocurrencies also believe that eventually we will merge with traditional finance. There will be some kind of regulatory framework around cryptocurrencies, and maybe traditional finance will use cryptocurrency technology to do things. Those people, that faction, have welcomed Wall Street’s interest in cryptocurrencies and, in particular, their interest in bitcoin ETFs because there is an expectation that the price of bitcoin will go up as investors flock to ETFs and buy up the supply of bitcoin and drive up the price.
Alex Ossola: That was our reporter Alex Osipovich. Next up, why crypto marketers are targeting baby boomers in a growing wave of ad campaigns. This is after the break. Cryptocurrency ads are targeting baby boomers. The marketers behind the ads are aiming to explain cryptocurrency to a new audience while also stoking their curiosity, like this ad from crypto asset manager Bitwise. It stars Jonathan Goldsmith, best known for playing The Most Interesting Man in the World in Dos Equis beer commercials.
Jonathan Goldsmith: You know what’s hot these days? Bitcoin.
Alex Ossola: WSJ Reporter, Patrick Coffee joins us now to learn more about this new wave of crypto advertising. Patrick, why are marketers targeting this demographic in particular?
Patrick Coffee: Well, to stand out, these wealth management firms have to attract and raise capital from some of the people who actually control the money in this country, which are investors and advisors who tend to be older, more conservative, and more risk-averse.
Alex Ossola: How are these companies making cryptocurrencies attractive to baby boomers? What kind of marketing are they pursuing?
Patrick Coffee: In a way, they’re targeting boomers directly. There was a video that the VanEck firm released on January 10th right after the SEC decision, and it’s a text exchange from someone called Mom, who’s obviously texting one of her kids and says, “How do I buy bitcoin?” And the kid says, “Oh, it’s easy now, Mom, there’s ETFs.” And she says, “Oh, my God, thank you so much.” Emoji, emoji. This is targeting the younger audience but also the older audience.
Alex Ossola: During the pandemic, we saw these multimillion-dollar cryptocurrency ads. How are these new campaigns different?
Patrick Coffee: They are very different because unlike those commercials, they are highly regulated because they are talking about securities that are approved and managed by the SEC. They are like exchange-traded funds. Whereas FTX, et cetera, they didn’t really have any regulation. They can do whatever they want. They could call Tom Brady and Larry David and say, “You better invest in cryptocurrency or you’re really missing out.” Whereas the new ones have rules that they have to abide by. For example, if they have to call a famous name and say, in particular, you should invest in this fund that has this ticker, then that person has to have a reasonable level of expertise on the specific subject matter at hand. They have a lot of other rules. First of all, they have to include disclosures about the risk involved and investing in these products.
Alex Ossola: How much do these companies spend trying to court new investors?
Patrick Coffee: Just from January 11th to January 30th, the combined spend of four of them that advertised on TV was about $300,000. But that doesn’t include things like digital display ads in airports or homepage takeovers, email newsletter sponsorships, and search ads, which is a big thing that they can do now. If you look up this, some of the first things that come up are all advertising. They can also now do YouTube ads, pre-roll ads, things like that, sponsored videos, because Google changed their official policy when the decision was made. Very soon, they will most likely be able to advertise on Facebook and Instagram as well because Meta, as a spokesperson told me, is in the process of updating their policies and complying with what the SEC decided. Ultimately, as a Bloomberg analyst told me, the products they’re promoting are exactly the same. So if they don’t find a way to differentiate their brands, it’s going to be difficult for them to really compete in terms of raising assets.
Alex Ossola: Is it working? Are baby boomers buying these ETFs?
Patrick Coffee: It seems like it’s because, as Bloomberg told me, a lot of them have crossed a threshold in terms of assets to be viable. That essentially means they’ve established their place in this nascent market and they’re going to be around for a while.
Alex Ossola: That was our reporter, Patrick Coffee, and that’s it for Tech News Briefing. Today’s show was produced by Julie Chang with supervising producer Katherine Milsop. I’m Alex Ossola for the Wall Street Journal. We’ll be back this afternoon with TNB Tech Minute. Thanks for listening.