With Bitcoin soaring but mood still sour, SoFi shutters crypto unit and RIAs stay on sidelines, with SEC non-approval of ETFs as scapegoat
The San Francisco digital banking firm private-labeled Coinbase in 2019, but now the asset looks too risky because a misstep could harm bread-and-butter banking franchise.
4 min read- SoFi shutters its crypto unit despite Bitcoin's resurgence and increased trading volumes.
- RIAs remain largely skeptical of crypto, missing potential client gains, says Ric Edelman.
- SEC non-approval of spot Bitcoin ETFs limits RIA participation due to compliance concerns.
Right when Bitcoin is hot again, the most futuristic of online banks is exiting (what some say is) the future of currency – reflecting a disconnect and trauma shared by the crypto-reticent RIA industry.
SoFi Technologies told customers, Nov. 29, to cash out crypto positions or move them to Blockchain.com – a giant in the business.
Though spot Bitcoin prices are through the roof year-to-date, it still remains distrusted and unnoticed – including by RIAs, says Ric Edelman, founder of Digital Assets Council of Financial Professionals.
"The rally is starting to catch RIA attention, but at this time of year advisors are more focused on business issues such as year-end tax planning," he writes by email.
“Pre-existing views persist. Crypto enthusiasts have been tracking this closely. But crypto haters - the majority - remain skeptical and dismissive.
Renewed interest
How Bitcoin is penetrating RIA portfolios by looking riskier to ignore than embrace
“It’s too bad. The clients of these advisors are missing out, and the advisors and firms themselves are missing out, too," he adds.
"I’ve been trying hard to get the advisory community to pay attention. Fortunately, we are beginning to see renewed interest. Nothing like a 150% gain to generate that!” See: Grayscale Investments is suing the SEC to get its ETF approved but bitcoin's swoon means 'public sympathy' may swing in favor of the regulator, a rules lawyer says
Edelman adds: “Until the new spot-Bitcoin ETFs become available – projected early January -- the conversation is moot. Most firms don’t allow their advisors to buy - despite the availability of many compliant and convenient products.” See: BlackRock believes that 33 is the charm as it applies to sell a spot Bitcoin ETF, after 32 prior attempts met failure at the SEC -- part of a new gold rush of applications
Hoops
The San Francisco banking and investing app maker put out a press release, Oct. 6th, promoting itself as “All Your Ambitions, All In One App” and as a “full-suite” of banking and investing services.
No doubt it may now be reacting in part to the Federal Reserve.
Story Timeline
The Fed voiced concerns about crypto in August, after SoFi obtained a long-sought bank charter in 2022.
The charter is conditional upon a probationary period of hyper-conformance to rule-following and financial stability.
Yet, it may be the first instance that the Fed did not outright prohibit a bank from staying in the business. Instead, it just asked SoFi to jump through certain other hoops, according to the regulatory filing.
Why the SEC's green light for Bitcoin ETFs failed to convince Charles Schwab & Co. to make crypto trading available to its 32.5 million retail accounts
Rollercoaster
“Under Section 4 of the Bank Holding Company Act, the Federal Reserve has permitted us to continue our current digital assets related offering for a two-year conformance period from the date we became a bank holding company, with the possibility for three one-year extensions, provided that we do not expand our impermissible activities,” SoFi writes in its March 10k filing.
Bitcoin's price – $41,200 – even after today's sharp one-day reversal of about $2,600 or 6%, is still up about 70% since September and more like 150% since Jan. 1.
Riskier investments and other interest-rate sensitive assets, such as gold, have also rallied hard over the last few weeks as markets wager the Federal Reserve has finished hiking rates and will start cutting early in 2024, according to Reuters.
SoFi's entry into Bitcoin was well-timed on Sept. 25, 2019 when the price was still in the $8,500 range.
From there, it soared to $68,789.63, a high, in Nov. 2021, before beginning a brutal retreat in April a year ago. By Nov., last year, It traded down to near $17,000.
Dropping banks
Bitcoin's rise boosted share prices of Coinbase. by 49% and Robinhood by 40% in the past 30 days. Their fortunes are tied closely to crypto-trading volume. SoFi shares (SOFI) are up about 16% over the same time.
The stock is up about 60% since it earned its charter approval last year. It can now cut out third-party banks as intermediaries, making the bank potentially more competitive and profitable.
Formerly, they relied more heavily on partnerships with banks like MetaBank, Hills Bank and Trust Company, EagleBank, East West Bank, Tristate Bank Capital Bank, and Wells Fargo.
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