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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a former global head of equity capital markets at Bank of America and is now a managing director at Seda Experts
Bitcoin’s spectacular surge this year has reignited a dilemma on Wall Street: how far should investment banks go in supporting cryptocurrency-related capital raisings? Recent offerings reveal a profound shift in thinking.
Not long ago, big banks kept crypto at arm’s length. The sector had a racy reputation, and bank leaders were vocal in their disdain. JPMorgan’s chief Jamie Dimon branded bitcoin a “fraud” and a “Ponzi scheme”. Regulatory fears deepened the chill. Crypto deals were left to smaller investment banks.
But times have changed. The Securities and Exchange Commission’s approval of bitcoin exchange traded funds in January 2024 marked a watershed. Moreover, Donald Trump’s election probably heralds a move to a more crypto-tolerant SEC, in contrast to the scepticism under chair Gary Gensler.
As deal sizes have swelled, so too has the roster of underwriters. Barclays and Citigroup have led multiple convertible bond offerings this year for bitcoin investor MicroStrategy. Goldman Sachs raised money for Applied Digital, a data centre operator that caters to bitcoin miners. JPMorgan has underwritten hefty convertible bonds for bitcoin mining and infrastructure groups Core Scientific, Mara and Iren.
As banks debate whether to dive headlong into the space or hold back, the central question is: can you lawyer these deals to the hilt, stack the prospectus with risk factors and call it good? Or is it too risky being associated with what many see as a wildly speculative sector?
The answer is not binary. It lies on a spectrum that reflects each bank’s risk tolerance and strategic outlook. And it’s not clear that all crypto-related companies should be viewed equally. An established exchange such as Coinbase may have a different risk profile from a bitcoin miner or an investment vehicle like MicroStrategy. Even across similar companies, reputational issues vary.
Consider MicroStrategy and its co-founder Michael Saylor. Without admitting wrongdoing, both settled accounting fraud allegations from the SEC in 2000 and a tax fraud lawsuit with the District of Columbia’s attorney-general in June 2024 for substantial monetary sums. Such a pattern typically triggers senior management review around client selection. Evidently, Barclays and Citigroup got comfortable with the association.
If all this sounds familiar, it should. Take special-purpose acquisition companies, or Spacs. Once shunned as gimmicky vehicles by some bulge-bracket banks, they were embraced by Wall Street during the 2019-2021 boom. But banks swiftly retreated by mid-2022, as reputational concerns surfaced. Crypto capital-raising has a similar feel — a volatile frontier where banks chase windfall fees and market share, while bracing for potential reputational blowback.
The drivers of these decisions are multi-faceted. Legal risk looms large. General counsels lose sleep over questions such as, “will we get sued if this tanks?” Media scrutiny is equally daunting; no one wants their company in negative headlines.
But risk alone doesn’t dictate behaviour. Fees matter. And in bitcoin capital markets, they are now substantial. More than $13bn of crypto-related convertibles have been issued in 2024, with most coming in the last quarter, according to IFR data. This translates into a fee pool that I estimate to be at least $200mm. And MicroStrategy’s $21bn equity offering is paying fees of 2 per cent to the banks handling the sales. That kind of potential revenue makes reputational reservations feel like a luxury.
There remains an unwritten code of respectability in banking. Certain businesses — such as adult entertainment — are shunned, even if perfectly legal. Cannabis companies, too, have struggled to convince big-name banks to underwrite their offerings. The reluctance isn’t rooted in moral outrage; it’s pure optics. Bankers know that certain businesses invite more public heat than they’re worth.
Yet once a few banks break ranks, the pressure mounts on others to follow. It’s safer to move as a pack; if anything goes wrong, no one bank gets singled out. The competitive instinct also plays a role. No banker wants to explain to their bosses why they missed their budget goals or dropped down the league tables.
In short, participation is not a verdict on crypto, but rather offers a glimpse into how investment banks weigh the three Rs of deal selection: risk, reward and reputation. In a process of continuous recalibration, senior leaders are balancing legal exposure, media reaction, regulatory risk and competitive pressures to determine where the boundary of “respectable” lies. As bitcoin moves from the fringe to the mainstream, big banks are inching further into the arena, one deal at a time.