Goldman Sachs to Launch Bitcoin Trading Operation In Near Future
Big financial institutions have largely had a spotty record when it comes to digital currency. Many storied banks and companies have stayed out of the cryptocurrency world, with a few exceptions.
News outlets have started to report on efforts by Goldman Sachs to launch a Bitcoin trading operation in the next few weeks. The firm is reportedly getting ready to use their own capital to trade Bitcoin futures contracts for clients. They are also planning to offer non-deliverable forwards to clients.
Rumors of Goldman Sachs working with cryptocurrencies has made headlines over the past few months. Bloomberg wrote in December about how the company was looking to launch a virtual currency trading desk, but CEO Lloyd Blankfein asserted in January that a Bitcoin trading desk was not going to happen. But he was quoted by media outlets saying the company was “clearing futures in bitcoins for some of our futures clients.”
Goldman employees are also looking into if they can get regulatory approval to buy and sell actual Bitcoins, assuming they can decide about how to mitigate risks with holding the virtual currency, according to CNBC. Goldman executive Rana Yared said virtual coins were not something the company did not understand, but just are a “heightened risk that we need to be extra aware of here.”
Yared said Goldman has decided Bitcoin is not a fraud, but does not have the characteristics of a currency. She said the decision to start trading Bitcoin contracts went through the company board of directors, and also mentioned how Goldman got a lot of inquiries from financial entities and foundations that were wondering how to handle Bitcoin donations. Some clients were also looking to hold Bitcoin because they saw it as a valuable commodity.
Despite the activity from Goldman Sachs, worries about the risks and volatility of cryptocurrencies have largely driven big financial institutions away (so far). Some entities have taken steps to close accounts of customers who trade virtual coins like Bitcoin, and some top executives have simply dismissed cryptocurrencies as a fraud or a speculative bubble.
Many are concerned about the volatility of virtual currency, especially in light of big price dips in the early months of 2018. A lot of the turmoil was based of off questions about how government regulators would look to handle (or not handle) digital currencies. Others express fears about the lack of regulations associated with cryptocurrency exchanges, and the potential for hacking.
But a growing amount of investors and hedge funds have started to wade into the virtual currency ecosystem. Commodity exchanges in Chicago permitted customers to trade Bitcoin futures in December. Goldman currently clears trades for customers on the Chicago Mercantile Exchange and the Chicago Board Options Exchange. Some tech companies have also started to offer Bitcoin-related services.
Goldman Sachs is well-known for their technological sophistication and willingness to delve into complicated products. Some think these guiding principals have inspired the company to enter into the virtual currency world, even as other big firms stay away (for now).
Justin Schmidt, who is now Goldman’s first digital asset trader, said he was attracted to the job because of the potential to have a “trusted institutional player” involved in cryptocurrency trading. He previously worked at Seven Eight Capital as a digital trader and also spent some time trading on his own time.
Schmidt will be placed on the foreign currency desk and will be looking into a couple of different issues.
He’s reportedly studying if the Federal Reserve and New York officials will give Goldman approval trade of ‘physical’ Bitcoin, and will conceivably study ways to store Bitcoin for customers that will thwart hackers. Schmidt and Yared agreed that current storage options are not up to Wall Street standards.
There’s speculation the recent moves by Goldman Sachs could lend more legitimacy to digital coins and start to cement cryptocurrencies like Bitcoin in the traditional financial system.