Under the Volcano

On Wall Street, crypto has been a slow train coming. It has been more than four years since Barron’s, in a cover story, chronicled the Street’s first big moves -- when the CME and the Chicago Board Options Exchange received approval to trade Bitcoin futures.

Now, the train is beginning to pick up just a little more speed. Days after Goldman Sachs announced that it had executed a Bitcoin non-deliverable option trade,  a much smaller rival, Cowen & Company, is making a big digital currency push.

The boutique investment bank announced today that it had created a subsidiary, Cowen Digital, that would give its institutional clients “secure and compliant access to the digital asset ecosystem.”

Jeffrey Solomon, Cowen’s CEO, said in a statement that “our clients now have access to the crypto and digital asset markets with our institutional quality and fully integrated end-to-end execution and custody capabilities.” Read Jack Denton’s report on Barrons.com here.

Drew Forman, head of derivatives sales and trading, will lead Cowen Digital. He told CoinDesk that the bank was already trading 16 cryptocurrencies for its clients, including Bitcoin, Ether, and USDCoin, a so-called stablecoin because it is tied to the U.S. dollar. Being “thought leaders” for clients will also be part of the new unit’s mandate, Forman said.

Being something of an underdog on Wall Street, Cowen is known for working with businesses like cannabis and biotechnology that other  firms might sometimes deem too risky. Crypto could be another outlier where Cowen sees an unmet need.

Yet more banks, some of which are already planning to introduce crypto trading on mobile apps, are likely to follow in Cowen's footsteps. And there is a growing groundswell of mainstream support for crypto transactions, coming from the likes of Visa and PayPal Holdings, as well as Tesla.

Institutional investors haven’t had the same crypto investment opportunities, Cowen CEO Solomon contends. In a July earnings conference call, according to a Sentieo transcript, he noted:

Institutions haven't really even begun to trade digital assets or crypto yet, just haven't done it. It's largely a retail game. We're seeing a tremendous amount of pent-up demand, we think, from our institutional clients to do that.

One crypto-related investment that institutional and retail investors alike will not be able to trade, at least not for a while, is El Salvador’s much-anticipated Bitcoin-tied sovereign bond issue.  

The bonds, which were set to be issued this month, would pay 6.5% annually over 10 years. They have been called “volcano bonds,” because half of the expected $1 billion-plus in proceeds would go toward a Bitcoin mining development that would be powered by geothermal energy from a nearby volcano. (The other half would buy Bitcoin, now legal tender in the Central American country.)

Reuters, however, reports that the offering will now be delayed, possibly pushed back to September, because of the volatility in financial markets that has come since the invasion of Ukraine.