Wall Street Stops Betting Against Crypto

Wall Street has stopped waiting for the crypto revolution to fail and has started underwriting its infrastructure instead. This article reports how a surge in institutional capital and a total reversal in Washington's regulatory stance are transforming a monetary project into a permanent pillar of the financial world.

Governments typically regulate in response to crises

American financial history is defined by reactive cycles. From the energy shocks of the 1970s to Enron's prosecution to the financial meltdown 2008, Washington typically waits for a crisis to settle before installing new regulatory guardrails.

Digital assets are no exception to this pattern. A series of high profile cases triggered a period of aggressive oversight that prioritized enforcement over integration.

Initially, federal agencies regulated digital assets without clear statutory guidance

Before 2021, the oversight of digital assets was the domain of federal financial regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) as other agencies largely viewed the sector as too niche to pose a systemic risk. Eventually, they found that their enforcement capabilities were hampered by the obsolescence of their regulatory frameworks.

The Howey test¹, an investment contract classification heuristic, and the Bank Secrecy Act (BSA)² provided overarching guidance on how federal agencies like the CFTC and SEC regulate banks and financial institutions. Because of the decentralized nature of the blockchain ecosystem, both legal frameworks lack governing authority as lawyers can't correctly classify crypto tokens under the Howey test or assign a central figure as the responsible party for financial transactions in case of misconduct.

Following legal headwinds in 2021 (Binance case³, FTX⁴, LUNA Terra⁵), the President signed Executive Order (EO) 14067⁶ to outline goals for consumer protection, responsible innovation, and competition in the blockchain ecosystem. The SEC followed with SAB 121⁷ in 2022, which discouraged institutional involvement in the crypto economy.

More recently, the drive to regulate digital assets has come from institutions

By 2023, traditional banks and crypto retail providers started leading a charge for regulatory oversight and industry reform. Consider Coinbase's regulatory expenditure that doubled in 2022 as shown in Figure 1⁸. Additionally, Uniswap Labs, a leading decentralized exchange, began conversing with the CFTC and the Department of the Treasury, signaling a shift toward bureaucratic engagement⁹. As the actors closest to the crypto economy sought resolutions to make the ecosystem easier to operate in, the total market cap of the sector increased steadily as displayed in Figure 2¹⁰.

The industry's push for reform culminated in two key resolutions that finally allowed institutional participation in 2025. The Oval Office signed EO 14178¹¹, which supported the promotion of dollar-backed stablecoins and the endorsement of public blockchain networks. Shortly after EO 14178 was signed, the SEC formally rescinded SAB 121¹², effectively ending the "bitcoin-as-a-liability" accounting practice and paving the way for institutional adoption of digital assets.

Following these two actions, larger institutions like Blackrock¹³ and Fidelity¹⁴ started pushing for the passage of the GENIUS Act¹⁵ and the Clarity Act¹⁶. Increased attention to stablecoins after the 2025 EO prompted further congressional deliberation, resulting in the passage of the GENIUS Act and delineating responsibility for stablecoin enforcement. The clarity in regulatory authority allowed federal financial agencies to publish guidance for holding stablecoins¹⁷, allowing traditional banks and credit unions to adopt the asset. The Clarity Act would provide clearer distinction between SEC and CFTC jurisdiction and amend components of older financial bills to allow institutions to hold digital commodities, showcasing that institutions have a stake in the secular adoption of digital assets and the broader crypto economy.

Institutions' drive for regulation is rooted in a need for diversification

The push for a clear regulatory playbook is being driven by a fundamental reassessment of economic risk. J.P. Morgan and other institutional leaders have signaled that a weakening dollar¹⁸ and coercion by way of payment rails¹⁹ make secular diversification a strategic necessity rather than a speculative luxury.

This shift is the culmination of years of quiet preparation. Major banks have deployed dedicated research teams to the sector since 2018, with most launching formal products by 2021. Because these institutions now hold a significant stake in the growth of the crypto ecosystem, they are aggressively lobbying for the "guardrails" that will allow them to scale their exposure. In an era where global integration no longer guarantees stability, Wall Street is betting that decentralized channels offer a resilient hedge against the breakdown of centralized trust.

At Gadget Capital, our success is directly linked to the maturation of the crypto economy. The institutional and regulatory momentum described thus far validates our investment thesis that digital assets represent a secular growth opportunity rather than a fleeting trend.