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Trump’s Crypto Embrace Opens The Door To A Wall Street Overhaul

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Wall Street is bracing for a clash pitting upstart cryptocurrency firms against traditional financial heavyweights. At stake could be nothing less than the future of stock trading.

Crypto behemoths — think Coinbase, Robinhood and Kraken — have set their sights on the $62 trillion equity market. They want to offer investors the ability to trade “tokenized” versions of stocks like Apple, Tesla and JPMorgan Chase. That means those assets could trade cheaply around the clock and around the world, not just when the stock market is open, they say.

Their efforts are setting the stage for what could be the biggest regulatory showdown in a generation: Rewriting U.S. stock trading rules in a way that could vault crypto companies into the highest echelons of the financial services industry.

Driving this transformation is President Donald Trump, who has openly embraced crypto since taking back the White House, placing industry allies in top regulatory positions, igniting a run-up in token prices and sparking new optimism about its future in the U.S.

Wall Street traditionalists, who once downplayed the threat of crypto, are fighting back. They are lobbying the Securities and Exchange Commission and demanding that the new entrants play by the same rules as the established stalwarts, such as requirements that they register with the agency and certain investor protections around stock trading. But some firms are also hedging their bets by accepting crypto.

“Many in traditional finance mistakenly believed that the crypto regulatory debate was really about crypto,” said Tyler Gellasch, a former SEC official who now leads an investor advocacy group. “It’s not.”

If traditional finance, or TradFi for short, gets its way, tokenized stocks would be treated the same as run-of-the-mill stocks, which means they would look and trade no differently than shares do today. But if some of the upstarts get their way, crypto could benefit from a looser set of trading rules tailored to their business models. That could splinter the market, critics say. One pool of money would trade crypto versions of stocks while another would trade the old-fashioned way, which could make both sides vulnerable to more price swings, they say.

“Creating loopholes in traditional markets in the name of crypto is a helluva gamble to take with markets relied upon by millions of American retirees, college savers and businesses,” Gellasch said.

The crypto industry’s push revolves around what digital asset enthusiasts call tokenization, which is effectively the process of putting assets like stocks on the blockchain.

In their eyes, the blockchain — the technology that undergirds digital assets — is inevitably bound to take over financial markets and replace their often decades-old infrastructures.

Equity tokenization “opens up whole new opportunities for financing and trading,” said DRW founder and CEO Don Wilson, whose Chicago trading firm is a giant in both crypto and other traditional markets. “Ten years out, we’re not even going to talk about it as tokenized equities. We’re not going to use that phrase.”

Tokenized stocks have been on the crypto industry’s to-do list for years. But it wasn’t until Trump — a one-time crypto scourge turned industry champion — came back to Washington that firms dove in with full force.

Coinbase, the largest crypto exchange in the U.S., and other firms are seeking the SEC’s blessing to go ahead despite lingering questions about the products’ permissibility under existing law. Others, like Robinhood and Kraken, are taking a slower approach, focusing their attention on overseas markets, an acknowledgment that regulating tokenized shares remains an open question in the U.S.

Either way, tokenized stocks will require some help from the SEC — and that’s where the fight begins.

A pack of traditional finance heavyweights including Citadel Securities, the trading powerhouse owned by GOP megadonor Ken Griffin, have started sounding the alarm about the SEC offering a workaround to its existing rules so that certain companies can offer tokenized stocks. Fundamentally, they say, tokenized shares are no different than traditional ones and regulating them in a new manner could create an uneven playing field and split the market.

“Policymakers definitely have to come in and make adjustments, but what we don’t want to see is suggesting that because something’s using one form of technology for the same product, it’s somehow treated differently than another form of technology,” Securities Industry and Financial Markets Association CEO Kenneth Bentsen Jr. said. “That seems nonsensical to us.”

Wilson of DRW similarly said tokenized equities “can absolutely and should absolutely trade under the existing rules.”

A person close to Robinhood said upending the existing apparatus and rules around stock trading overnight “isn’t realistic.” But crypto firms, the person added, do need “some relief from the existing rules to make it work.”

“Does tokenization have to disintermediate everybody right away? No,” said the person, who was granted anonymity to speak freely. “But some amount of disintermediation is probably inevitable in the long run.”

The SEC isn’t showing its hand yet. Last week, Chair Paul Atkins said he asked staff at the Wall Street regulator to work with companies “to provide relief where appropriate to assure that Americans are not left behind” before suggesting the existing rules around stock trading in the U.S. could soon undergo a massive facelift.

“Whether an incumbent or a new entrant, the SEC welcomes all market participants who are hungry to innovate,” he said.

Nonetheless, the prospect of tokenized stocks has set off a wave of excitement among crypto players eager to usurp their TradFi counterparts. Diogo Mónica, a general partner at crypto-focused venture capital firm Haun Ventures, said in no uncertain terms that “power is going to be reduced on Wall Street.”

Crypto already scored an important victory last month when Trump signed a bill creating a regulatory framework for a type of token pegged to the U.S. dollar known as stablecoins.

“The banks got absolutely rolled on the stablecoin bill and are now facing enormous amounts of quickly moving, unfair competition,” said Corey Frayer, who served as former SEC Chair Gary Gensler’s crypto adviser. “Wall Street is either going to learn that lesson and be very vocal to make sure that everybody has to play by the same rules, or they’re going to watch the SEC destroy the goose that laid their golden egg.”

And yet, eating Wall Street’s lunch is never actually that simple.

TradFi firms have long had a knack for adapting to new trends, albeit perhaps not at the quickest rate. And throwing money at the problem is always an option, which could result in a wave of deals and, ironically, make those legacy firms the next generation of crypto giants. Some major TradFi players like BlackRock have already jumped into the tokenization frenzy.

And whether everyday investors actually want to hold blockchain-based versions of Apple, Tesla and JPMorgan Chase shares remains an open question. After all, crypto, despite the headlines, remains a niche business. Just 8 percent of Americans reported using crypto in any way in 2024, according to the Federal Reserve, down from 10 percent two years earlier.