Bit by bit

As bitcoin lurches, Wall Street plots its way into cryptoland

To work out the fate of crypto-investing, watch what the banks do next

CRYPTO BUFFS have had a punishing week. On May 13th Tether, which issues a “stablecoin” widely used to facilitate bitcoin trading, said that just 2.9% of its $58bn-worth of coins is backed by cash reserves, feeding doubts about its dollar peg. Elon Musk, Tesla’s boss, tweeted that the electric-car maker would not after all accept payments in bitcoin. Then on May 18th China warned financial firms against servicing cryptocurrencies. The price of bitcoin tumbled to $30,000, less than half its record high in April, before stabilising at around $39,000.

As it cratered, bitcoin dragged most other cryptocurrencies with it. Several big crypto exchanges, including Coinbase, experienced lengthy outages. Investors unable to liquidate positions felt trapped; those willing to “buy the dip” felt cheated. The latest swing might raise doubts about whether crypto markets are liquid or even reliable enough to welcome institutional investors en masse. That is why it is worth looking to Wall Street.

America’s big banks have been venturing into cryptoland. In March Morgan Stanley became the first to offer wealthy customers access to bitcoin funds. Last month Goldman Sachs…