Bitcoin Surge Spurs City to Recruit Crypto Natives

Businesses survive by assimilating useful upstarts and excluding dangerous ones. This is the theme of Victorian novels, in which self-made entrepreneurs became MPs and American heiresses married dukes. This is also a trend in financial services.

The value of unregulated cryptocurrencies has risen to an estimated $2.8 trillion. Regulated banks, fund managers and consultants build or expand young digital asset operations.

The City of London and Wall Street are grappling with the fear of missing out. This gives workers in the unregulated crypto business a path into “TradFi” or traditional finance.

An experienced candidate can receive a base salary of £150,000 to £200,000 a year plus a bonus, says Robert Lycett, director of M-Wek, a London recruitment consultant. A blockchain programmer can expect to earn £200,000 to £250,000 annually. Temporary workers earn up to £1,500 per day. Even “a talented and enthusiastic” [cryptocurrency] hobbyist gets a job,” Lycett adds.

A skeptical reaction would be for banks and brokers to hire staff due to a short-lived Bitcoin high. The flagship cryptocurrency is volatile, polluting, and sometimes used for illegal payments. It accounts for about two-fifths of the estimated value of cryptos. The world is in a broader asset bubble. If this wears off, Bitcoin could easily collapse.

Rich clients would then stop criticizing asset managers for refusing to trade or give advice on Bitcoins. Bitcoin-critical bosses like Jamie Dimon from JPMorgan would feel vindicated.

However, record highs for Bitcoin are only part of the story. Bankers say they are investing in digital asset expertise for defensive reasons. They don't expect to ever set up stores with unregulated cryptos. They provide for one-day trading of tokenized stocks and bonds approved by regulators. “If you’re not ready on day one, it’s too late,” says one contact.

The distributed ledger technology that underpins cryptocurrencies could make regulated transactions faster, cheaper and more sophisticated. Big banks have been experimenting for years. They had little impetus to go into wholesaling.

There are three reasons. First, banks have made huge investments in legacy systems that they have no interest in disrupting. Second, there is no reliable legal or regulatory framework for trading digital assets. Third, there is a “collective action problem” – the syndrome where phones are useless unless lots of people install them.

Instead, Bitcoiners have been left to show that a digital asset can be widely shared and exchanged, albeit sometimes unreliably and disreputably. Bitcoin could therefore prompt the introduction of government-sanctioned digital currencies. China already has a limited version of this. EU central banks want to follow suit. The USA and Great Britain are sitting on the fence.

My guess is that it would take years if developed democracies decided to adopt official digital currencies. Politicians and central bankers also have to defend legacy systems and power oligopolies. Regulated digital assets like tokenized stocks and bonds could catch on sooner.

Meanwhile, most regulated firms are hiring staff in areas that do not involve trading unregulated cryptos or providing investment advice. They resemble the nice boy who avoids inhaling when given a joint at a party.

A recently launched exchange-traded fund from US specialist ProShares has been dubbed “the first Bitcoin ETF”. In reality, the exposure comes from regulated futures. Fidelity's retail customers also cannot buy Bitcoins through its platform - although they can use it to view holdings on Coinbase, a crypto exchange.

For its part, Nomura does not trade cryptos, but is involved in a custodian that does. Banks such as JPMorgan, Morgan Stanley and Deutsche publish research on digital assets. This is usually observational or provides recommendations on crypto company stocks.

It is clear that the financial institution has tentatively begun to assimilate parts of the crypto experiment that could be useful to it.

Integrating new employees from this world will be an interesting challenge for managers. For some new hires, cryptos will still embody a valid anti-authoritarian belief system as well as a technological solution. You can be convinced that Jamie Dimon is an industry thought leader and not, as some see him, a TradFi no-coiner at the top of an entitled assetocracy.

jonathan.guthrie@ft.com