Has Wall Street missed the boat on cryptocurrencies?

Big banks have changed their attitude toward cryptocurrencies in recent years, going from dismissive to cautiously interested. But Wall Street still isn’t fully embracing digital currencies.

Cryptos are no longer condemned as a bizarre alternative investment, and even central banks around the world are considering issuing digital currencies. Bitcoin is trading at more than $50,000 per token and Dogecoin, which literally started as a joke, is now one of the largest digital currencies.

Last month, crypto trading platform Coinbase went public with a valuation of nearly $100 billion. This should have been a wake-up call for big banks, much as Netscape’s 1995 IPO was a Sputnik moment for the tech industry.

One reason banks are hesitant: Cryptocurrencies are still in regulation purgatory.

The US government, for example, can’t decide what they are. As currencies they face very little regulation. But as securities, such as stocks and other investments, they would face a different level of scrutiny.

In December 2020, the US Securities and Exchange Commission filed a lawsuit against crypto platform Ripple and its leadership for the alleged illegal selling of unregistered securities — in form of its cryptocurrency XRP — worth $1.3 billion.

The case, which is ongoing, suggests XRP is a security and not a currency, because otherwise securities law wouldn’t apply. Ripple rejects that label.

Cases like that, paired with the huge regulatory uncertainty for other big cryptocurrencies, make it hard to get involved for banks, which are regulated to the bone.

“Undoubtedly, the Ripple action was an example of the regulatory dark cloud that could potentially hang over cryptos other than Bitcoin or Ether,” Ashley Ebersole, a partner at law firm Bryan Cave Leighton Paisner and former SEC attorney, told CNN Business.

Bitcoin and Ether, the currency of Ethereum, are so large and decentralized at this point that no promotional efforts by individuals would make a difference to their trading, Ebersole added.

Regulatory uncertainty is scary for companies looking to jump on the crypto bandwagon. But eventually, banks will likely be able to get on board.

Goldman Sachs (GS) reportedly restarted its crypto trading desk in March and will soon offer its private wealth management clients ways to invest in cryptos.

Goldman Sachs CEO David Solomon said on the company’s earnings call in April that the rapid rise of cryptocurrencies signals that “there will be significant disruption and change in the way money moves around the world.”

“We need to operate within the current regulatory guidelines,” Solomon said during the earnings call. “For example, we cannot own Bitcoin or trade it as principal.”

Meanwhile, JPMorgan (JPM) Co-President Daniel Pinto said that if crypto demand from clients keeps increasing and the asset class keeps growing and developing, banks can’t just sit on the sidelines.

Digital currencies should best be thought of as a new financial product banks are getting involved with, Ebersole said. “Does it require new and different financial control? Probably.”

To be sure, big Wall Street names have already made money on the most recent bout of crypto-mania. Goldman was the lead bank for Coinbase’s direct listing, for example, which means the company reaped the highest fees for their investment banking efforts.