Unlock Editor’s Digest for free
FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.
The writer is former global head of equity capital markets at Bank of America and now managing director of Seda Experts.
Bitcoin’s spectacular rise this year has reignited a dilemma on Wall Street: How far should investment banks go to support cryptocurrency-related capital raisings? Recent deals reveal a profound shift in thinking.
Not long ago, big banks kept cryptocurrencies at arm’s length. The sector had a spicy reputation and banking leaders expressed their disdain. JPMorgan boss Jamie Dimon called Bitcoin a “fraud” and a “Ponzi scheme.” Regulatory fears deepened the cold. Cryptocurrency deals were left to smaller investment banks.
But times have changed. The Securities and Exchange Commission approval of bitcoin exchange-traded funds in January 2024 marked a milestone. Furthermore, the election of Donald Trump will probably heralds a step towards a more tolerant SEC towards cryptocurrencies, in contrast to Chairman Gary Gensler’s skepticism.
As the size of transactions has increased, so has the list of subscribers. Barclays and Citigroup have led multiple convertible bond offerings this year for bitcoin investor MicroStrategy. Goldman Sachs raised money for Applied Digital, a data center operator serving bitcoin miners. JPMorgan has underwritten significant convertible bonds for bitcoin mining and infrastructure groups Core Scientific, Mara and Iren.
As banks debate whether to jump headlong into the space or hold back, the central question is: can they defend these deals to the fullest, fill the prospectus with risk factors and call it a good one? Or is it too risky to be associated with what many see as a wildly speculative sector?
The answer is not binary. It falls on a spectrum that reflects each bank’s risk tolerance and strategic outlook. And it’s not clear that all cryptocurrency-related companies should be viewed equally. An established exchange like Coinbase may have a different risk profile than a bitcoin miner or investment vehicle like MicroStrategy. Even among similar companies, reputation problems vary.
Let’s think about MicroStrategy and its co-founder Michael Saylor. Without admitting wrongdoing, the two settled SEC accounting fraud allegations in 2000 and a tax fraud lawsuit with the District of Columbia attorney general in June 2024 for substantial monetary sums. This pattern often triggers a senior management review of client selection. Evidently, Barclays and Citigroup were comfortable with the partnership.
If this all sounds familiar, it should. Take special purpose acquisition companies, or Spacs, for example. Once rejected as gimmick vehicles by some high-end banks, they were embraced by Wall Street during the 2019-2021 boom. But the banks quickly retreated in mid-2022, when concerns about their reputation arose. Crypto capital raising has a similar feel: a volatile frontier where banks chase extraordinary fees and market share, while bracing for potential reputational damage.
The factors driving these decisions are multifaceted. Legal risk takes on great importance. General counsel lose sleep over questions like, “Will they sue us if this fails?” Media scrutiny is equally discouraging; Nobody wants their company to appear in negative headlines.
But risk alone does not dictate behavior. Rates matter. And in the bitcoin capital markets, they are now substantial. More than $13 billion in cryptocurrency-related convertibles were issued in 2024, most of them in the last quarter, according to IFR data. This translates into a set of fees that I estimate to be at least $200 million. And MicroStrategy’s $21 billion stock offering pays 2 percent commissions to the banks that handle the sales. That kind of potential income makes reputation reserves seem like a luxury.
There remains an unwritten code of respectability in banking. Certain businesses, such as adult entertainment, are rejected, even if they are perfectly legal. Cannabis companies have also had difficulty convincing big-name banks to underwrite their offerings. Reluctance is not rooted in moral indignation; It’s pure optics. Bankers know that certain companies cause more public irritation than they are worth.
However, once a few banks break ranks, pressure increases on others to follow. It is safer to move in a pack; If something goes wrong, no bank is pointed out. The competitive instinct also plays a role. No banker wants to explain to their bosses why they didn’t meet their budget goals or fell in the rankings.
In short, participation is not a verdict on cryptocurrencies, but rather offers insight into how investment banks weigh the three Rs of deal selection: risk, reward and reputation. In a process of continuous recalibration, senior leaders are balancing legal exposure, media backlash, regulatory risk and competitive pressures to determine where the line of “respectable” lies. As Bitcoin moves from fringe to mainstream, big banks are inching into the space, one deal at a time.