In-Depth Analysis of TradFi Accelerating Entry: Custody Wars, Institutional Fund Flows, and the Full Scenario of RWA Tokenization Implementation

In the first quarter of 2026, the global crypto market narrative experienced a profound “subject shift.” While the market was still discussing catalysts for the next bull cycle, the giant wheels of traditional finance (TradFi) had already entered deep waters. From Citi announcing plans to launch institutional-grade Bitcoin custody, to Morgan Stanley pushing spot crypto trading onto its wealth platform, and Hong Kong approving its first real-world asset (RWA) project for real estate, a series of events collectively point to a core fact: crypto assets are moving from fringe alternative investments to being rapidly integrated into the infrastructure framework of mainstream global finance.

This compliance-driven “migration” led by TradFi is not merely a market expansion but a deep shift in power structures. The contest over custody rights, the transfer of institutional funding pricing power, and the tokenization of RWAs redefining asset ownership are redrawing the boundaries of influence in the crypto world. This article will analyze the causal chain and future outlook of this transformation, using the latest developments as of February 2026.

Event Overview: The “Encirclement” Strategy of TradFi Giants

On February 28, 2026, industry media reported that banking giant Citi is accelerating its digital asset strategy, planning to launch institutional Bitcoin custody services later this year. The core vision is to integrate Bitcoin into the existing bank custody, reporting, and tax frameworks that serve traditional assets, allowing clients to execute instructions via SWIFT, APIs, and other conventional channels. This enables crypto assets to be managed alongside US Treasuries, stocks, and other traditional assets within a single master custody account.

Almost simultaneously, another financial giant, Morgan Stanley, demonstrated an aggressive stance. Not only did it apply for exchange-traded products (ETPs) for Bitcoin, Ethereum, and Solana, but it is also exploring integrating wallet technology into its extensive wealth management platform, gradually rolling out spot crypto trading services on E-TRADE. Meanwhile, in Asia, the Hong Kong Securities and Futures Commission officially approved the first real estate RWA project, bringing physical assets in Central’s core business district into a compliant tokenized issuance framework.

These developments are not isolated technical pilots but form a clear industry signal: the main force of traditional finance is shifting from peripheral observation to substantive infrastructure building.

Background and Timeline: From “Rejection” to “Embrace”

The evolution of TradFi’s attitude toward crypto assets follows a clear “suspicion - exploration - acceptance - dominance” timeline:

• Emerging Stage (~2023): After shocks from events like FTX, traditional financial institutions viewed crypto as a high-risk forbidden zone. However, asset management giants like BlackRock began reverse positioning by applying for Bitcoin spot ETFs, laying standardized groundwork for compliant entry into TradFi.

• Regulatory Breakthrough (2024-2025): The success of Bitcoin spot ETFs became a turning point. BlackRock’s IBIT became the fastest-growing ETP in history, demonstrating huge demand from traditional investors for regulated crypto exposure. This not only educated the market but also validated the logic of “compliance drives traffic.”

• Infrastructure Deepening (2025-2026): With clearer regulatory frameworks like the “2026 Responsible Financial Innovation Act,” banks gained explicit permission to enter. From late 2025 to early 2026, plans emerged from NYSE and Nasdaq to launch 24/7 blockchain trading platforms. Now, with Citi and Morgan Stanley’s substantial custody and trading layouts, TradFi is shifting from “product distributors” to “infrastructure operators.”

• Asset Diversification (2026): After payment and trading channels are connected, asset tokenization becomes a natural extension. From US Treasuries to physical office buildings in Central Hong Kong, RWAs serve as experimental fields where TradFi combines its core advantage (assets) with crypto technology (liquidity).

The core driver of this causal chain is customer demand. As Citi executives state, clients “don’t want to handle wallets and keys,” they simply want exposure to crypto within familiar banking systems. This service logic—“leave the complexity to us, keep it simple for clients”—is the fundamental reason for TradFi’s entry.

Reshaping Capital, Custody, and Trading Landscapes

Structural Shift in Institutional Capital Flows

According to J.P. Morgan analysts, after nearly $130 billion of historic capital inflows into crypto in 2025, the main driver in 2026 will shift from retail to institutional. This is not a linear growth but a structural substitution. Data shows that as compliant products like BlackRock’s Bitcoin ETF penetrate deeply, institutions are transforming Bitcoin from a high-volatility speculative asset into a stable income-generating asset through complex strategies like covered call options. The Bitcoin Volatility Index (BVIV) has dropped sharply from around 70% to about 45%, quantifying the market’s maturity and institutional dominance.

The Underlying Logic of the “Custody War”

Custody is the physical carrier of this power shift. Citi’s intent is not just to “safeguard” private keys but to unify account systems. When Bitcoin can be held in the same master custody account as US Treasuries and cross-asset margining is realized, crypto assets truly attain equal status with traditional financial assets.

This transformation will generate two types of competition:

• Regulatory Credit Advantage: Banks like JPMorgan and Citi, backed by FDIC insurance and national credit, are naturally attractive to large institutions like pension funds and sovereign wealth funds, directly challenging native compliant platforms like Coinbase, which have built their reputation on security.

• Fee Structure Reshaping: Banks, known for “thin margins and high volume,” will inevitably lower fees for digital asset custody and trading, squeezing profit margins of pure crypto-native platforms.

Divergence in Trading Structures

Platforms like Gate.io are evolving through TradFi product routes such as MT5/CFD, bringing macro assets like gold and stock indices into crypto accounts, creating a “financial supermarket.” This trend essentially uses crypto-like experiences (24/7 trading, stablecoin margin) to connect with traditional markets, while banks like Citi use traditional accounts to hold crypto assets—forming a “two-way” structure. Both ultimately aim for a unified multi-asset account.

Optimism, Concerns, and Structural Debates

Mainstream Optimists: Compliance as the Biggest Benefit

The industry generally believes that the influx of traditional capital will expand the overall market size. The Davos 2026 forum’s tone has shifted: Web3 is no longer seen as a “challenger” but as part of the next-generation global financial infrastructure. When sovereigns discuss RWAs and global leaders focus on on-chain payment efficiency, digital assets have become an irreversible part of the global economy.

Cautious Skeptics: Loss of Discourse Power and “Gene Conflict”

Another voice worries about changing rules of the game. In discussions at Gate.io, some users openly say, “JPMorgan is here, the good days for small platforms are probably over.” Native crypto institutions’ agility, innovation speed, and community culture may be “tamed” by banks’ compliance frameworks and risk controls. The entry of TradFi essentially rewrites crypto rules with its own, rather than integrating into existing ones.

Structural Controversy: Are RWAs Enabling or “Bloodsucking”?

Supporters of RWA acceleration believe that bringing trillions of dollars of traditional assets on-chain will unlock crypto’s value and activate DeFi ecosystems. Critics argue that RWAs introduce external credit risks (like real estate defaults, corporate bankruptcies) into the closed crypto system and may siphon liquidity away from native crypto assets.

From “Grassroots Revolution” to “Mainstream Acceptance”

Looking back over more than a decade of crypto history, its core narrative has been “resisting centralized financial power.” Today, the once-oppositional giants like BlackRock, Citi, and Morgan Stanley are becoming the industry’s most influential drivers. Is this the end of the narrative or the beginning of a new one?

The fact is: power is shifting. From the Bitcoin white paper’s vision of “peer-to-peer electronic cash” to today’s alternative holdings in institutional accounts, the “use cases” of Bitcoin have fundamentally changed.

The perspective is: this is not betrayal but maturity. The entry of TradFi provides liquidity, stability, and legitimacy to crypto assets, at the cost of some decentralization ideals.

The projection is: the future crypto world will no longer be a binary “native vs. traditional finance” dichotomy but a layered structure—core assets hosted by banks and compliant institutions providing fiat on/off ramps; upper layers built by exchanges and DeFi protocols creating highly liquid markets and composable financial applications.

Three Pillars of Power Structure Transformation

Custody Rights: From “Technical Security” to “Institutional Security”

Historically, custody focused on “private key management technology”; moving forward, it centers on “balance sheet strength” and “regulatory compliance.” Banks with sovereign credit backing will have an advantage in competing for top clients like sovereign funds and corporate treasuries. Native custody providers must transform into technology service and white-label solution providers.

Pricing Power: From “Market Sentiment” to “Macro Models”

As institutional share increases, the price drivers of assets like Bitcoin are changing. Correlations with traditional markets are being re-evaluated, and volatility characteristics are aligning more with macro assets like gold and Nasdaq. Future pricing power will increasingly rest with macro hedge funds and quantitative models rather than solely market sentiment.

Asset Definition Power: From “Native Tokens” to “Global Asset Tokenization”

BlackRock’s 2026 outlook emphasizes “asset tokenization entering the next phase,” believing that the real growth comes from broader asset on-chain. At Davos, “sovereign-level RWAs” became a hot topic, with over ten countries exploring national asset tokenization. This indicates that the definition of assets in the crypto world is shifting from “new tokens issued by projects” to “old assets in new forms” led by TradFi.

Multi-Scenario Evolution Projections

Based on the above analysis, we can envision three possible scenarios over the next 1-3 years:

Conclusion

The accelerated entry of TradFi is not the “end” for crypto but a new “prelude.” This shift in power structures is essentially a collision between the “old continent” and the “new continent” of finance. Custody battles will determine asset entry points; capital flows will define pricing logic; RWA implementation will reshape asset supply structures.

For industry participants, the key is not to cling to or lament decentralization ideals but to recognize clearly: crypto is transforming from a “special economic zone” governed by internal rules into a “new development zone” aligned with global financial sovereignty. Understanding how power shifts, how structures evolve, and how risks propagate will be crucial for maintaining competitiveness in the next phase. The future winners will be those who can find the optimal balance between traditional finance rigor and crypto innovation.