Some of the biggest names in finance are making new bets on cryptocurrencies, adding competition and momentum to an upstart industry that is under increasing pressure from US regulators.

The world's largest money manager, BlackRock (BLK), wants to start a new exchange-traded fund that would use bitcoin as an underlying asset.

Two other sizable money managers, Fidelity Investments and Charles Schwab (SCHW), are backing a new cryptocurrency exchange with Citadel Securities.

And one of the world's biggest lenders, Deutsche Bank, wants to operate a crypto custody business that would hold digital assets for its clients.

These endorsements from institutions that have a track record on Wall Street are helping to push the value of cryptocurrencies higher, especially bitcoin (BTC-USD).

The world’s largest cryptocurrency rose to its highest price in a year on Friday, to $31,389, after climbing above $30,000 for the first time since April. Through Friday bitcoin had risen 81% year to date.

Other cryptocurrencies also surged this week, including ether (ETH-USD) and Avalanche's AVAX (AVAX-USD) token.

The total market capitalization for crypto assets reached $1.2 trillion on Friday, 14% higher than where it stood a week earlier.

Rising peril

This new interest from mainstream financial institutions comes at a time of rising peril for an industry that struggled to regain its footing following the 2022 implosion of cryptocurrency exchange FTX and the regulatory crackdown that followed.

The Securities and Exchange Commission earlier this month filed lawsuits against the biggest crypto exchanges in the US and the world, Coinbase (COIN) and Binance, alleging they both allowed digital currencies to trade on their platforms that should have been registered with the agency.

That stoked new concerns that it could become more difficult to trade certain digital assets. Since the beginning of 2023 the SEC has charged 15 different crypto actors with violating securities laws.

A surprise turnaround in sentiment about the industry started June 15, when BlackRock, which controls more than $9 trillion in assets, filed paperwork with the SEC to create a spot bitcoin exchange-traded fund.

Such a fund would be tagged to the value of the original digital asset instead of merely tracking bitcoin futures. Coinbase would be the custodian for the bitcoin holdings.

"I think there's an element of — we need institutional custodians to step in and play roles and participate in digital token economies," BlackRock’s head of strategic partnerships Joseph Chalom said Thursday at the Coinbase State of Crypto Summit in partnership with the FT.

The value of bitcoin soared on the announcement. Other institutional players such as Invesco and Wisdom Tree Investments quickly followed by renewing spot bitcoin ETF applications they had previously submitted to regulators.

The efforts still face a significant hurdle. The SEC has denied 27 prior applications to create spot bitcoin ETFs since 2013, arguing the products are vulnerable to market manipulation.

Wisdom Tree, in fact, was turned away in 2021. One asset manager, Grayscale Investments, is suing the SEC because it wasn't allowed to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin offering.

'Conflicts of interest'

Another catalyst for the industry came this week when a new cryptocurrency exchange that has backing from Citadel, Fidelity and Charles Schwab said it had begun executing trades.

The venture, EDX Markets, began discussing its plans in late 2022 and touting itself as an operation that would "remove significant conflicts of interest that affect existing cryptocurrency exchanges."

It made the same point again last week, citing a "non-custodial model designed to mitigate conflicts of interest." It won't handle digital assets owned by customers, instead running a marketplace where buyers and sellers deal with each other directly.

As part of FTX's collapse last year it was revealed that an affiliated trading firm used customer assets to make its own trades. The SEC has also alleged that Binance misused customer funds, a charge Binance denies.

Earlier this month SEC Chair Gary Gensler said in a briefing with reporters that a standard business model for crypto exchanges is "built on conflicts," "limited disclosure” and “at times deception."

Jamil Nazarali, CEO of EDX, said in an interview that "FTX just validated our business model." What EDC is doing, he added, is "taking the best of the digital world, 24 by seven trading, many of the innovations of blockchain and combining it with the investor protections in traditional finance."

EDX says it will offer trading in just four cryptocurrencies—bitcoin, ether, litecoin and bitcoin cash. None of those assets have been deemed securities by the SEC, allowing EDX to potentially sidestep some of the problems encountered by Coinbase and Binance.

Together those exchanges allow the trading of 19 digital currencies that the SEC has labeled as securities, meaning they need to be registered with the agency. In total the agency has designated 55 cryptocurrencies as securities in various lawsuits, according to data compiled by Cryptorank.io.

Coinbase is fighting the suit and denies the SEC's claims. On Thursday its CEO Brian Armstrong did not sound worried while speaking at a crypto conference in New York.

Instead he said in the next five to seven years the Coinbase platform could turn into a "superapp' like WeChat, which is used in Asia for everything from messaging to banking to ordering food.

"Despite some negative rhetoric, headlines, this industry is moving forward," he said.

Roger Bayston, head of digital assets for Franklin Templeton, said the scrutiny from regulators is necessary.

"​​As much as it's been bumpy, regulatory clarity really is clearing the decks for the adoption of standards that will allow capital to flow," he told Yahoo Finance.

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