While stopping short of a full-suite cryptocurrency exchange, Goldman Sachs is to begin trading contracts linked to the price of Bitcoin with clients. Using its own money to commence operations, Goldman Sachs is the latest Wall Street powerhouse to capitulate and attempt to make sense – and profits – out of Bitcoin.
A hale and respected company that is almost synonymous with Wall Street, Goldman Sachs has satisfied itself of the merits of the venture and it appears they will enable the very first Bitcoin trading operation run by a Wall Street bank. Commentators are still abuzz over the move as, a mere few months ago and certainly a year or two ago, no self-respecting formal banking sector member would do anything but sneer at virtual currencies.
A frequent target for criticism from all quarters due to its position of power and involvement in the subprime mortgage crisis, something that earned it the scrutiny of regulators, Goldman Sachs has amazed some of those critics and many altcoin enthusiasts who see this latest move as indicative of the eventuality of digital currencies running the world.
There is still a long way to go, but enthusiasts are not denying that this is a very new and welcome move by the investment bank. What the move says of their ethics and supposedly “best advice” is unclear, because as recently as January 23, 2018 the company had said: “We think the concept of a digital currency that leverages blockchain technology is viable given the benefits it could provide: ease of execution globally, lower transaction costs, reduction of corruption since all transactions could be traced, safety of ownership, and so on. But Bitcoin does not provide any of these key advantages.”
Something has changed and, although Bitcoin has shed a lot of its baggage and is now a far more respectable asset, observers point rather to a dramatic change of heart from within the bank, with some crypto news sites saying Goldman Sachs is “doing a 180.”
At the time of the banks comments, it took around 10 days for a Bitcoin transaction to process fully. Either Bitcoin has met the bank’s stringent requirements for tradable assets, or the bank is not so stringent after all. Critics suggest that the company’s appraisal of Bitcoin hasn’t changed, they simply see an opportunity for making money while the “bubble” lasts. It seems, however, that a cabal within Goldman Sachs has reappraised and pushed for a positive response to the new offer.
One of the bank’s team overseeing the roll out of the project is Rana Yared and her comments, while optimistic, are also cautious. “I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” she said. “For almost every person involved, there has been personal skepticism brought to the table.” Most established banks have begun blockchain apps, but stay far away from digital coins.
The move by Goldman Sachs comes with immeasurable legitimacy for Bitcoin and other virtual currencies. Justin Schmidt will run the Goldman Sachs’s Bitcoin operation, while the vice president of principal strategic investments, Marianna Lopert-Schaye, and the Research and Development lead Neema Raphael will also help manage the desk.
Bitcoin futures began in December 2017 on the Chicago commodity exchanges. Tech outfits like Square are also offering Bitcoin services and a number of hedge funds and other investors have begun to show an interest in altcoins. On the flip side of former critics’ praise, is the jibe that Satoshi Nakamoto wanted to eliminate big, powerful banks, not further enable their profitable trading. It seems, however, notwithstanding JP Morgan’s Jamie Dimon labeling Bitcoin “a fraud” in 2017 and some banks even shutting down accounts that were “crypto-oriented,” that initial snobbery is giving way to a more honest and mercenary appraisal of digital coins in the community.
Coming soon after Christoper Giancarlo, the CFTC chairman, said that it remains difficult to classify altcoins as being either currencies or securities, Yared said Goldman have positioned Bitcoin as an investment for clients. Goldman Sachs clients have expressed an interest in holdings of this nature. “It resonates with us when a client says, ‘I want to hold Bitcoin or Bitcoin futures because I think it is an alternate store of value,’” Yared said. She also said that “It is not a new risk that we don’t understand, It is just a heightened risk that we need to be extra aware of here.”
The decision to commence rolling out the offer to the bank’s clients was made at board level. The bank hopes to be trading with its new futures instrument within the next few weeks. In spite of being lumped in with the rest of the staid, protective Wall Street community, Goldman Sachs has in fact shown a strong bias towards Bitcoin, historically clearing trades for clients who trade Bitcoin futures in Chicago, among other services. Its new offering will not quite be futures trading, but rather a more flexible product known as a “non-deliverable forward.”
From trading for Seven Eight Capital, during 2017 Schmidt resigned to trade as an individual. Having joined Goldman Sachs a mere two weeks ago, he is to be their first “digital asset trader.” Schmidt will at first sit at the foreign currency desk as Bitcoin trading is deemed to have similar aspects to emerging market currency movements, Yared said. Schmidt will trade actual Bitcoin – known as “trading the physical Bitcoin” – once the bank has obtained regulatory approval from industry authorities and the Federal Reserve.
Known for its flair and willingness to chase trading opportunities, Goldman Sachs picked up loads of flak in the subprime mortgage collapse some years ago. The bank had been trading synthetic derivatives that tied it into the subprime mortgage markets. Schmidt said that as a trader, he had been looking for an offer from an established player, much like the new venture the bank is rolling out. He also confirmed that he had been enticed by the sophistication of the company. Although Goldman Sachs will have to tighten security protocols with their new offer, Schmidt encapsulated the value by saying that “In terms of having a trusted institutional player, it has been something I have been looking for in my own crypto trading — but it didn’t exist.”