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This week was dominated by rumors that Goldman Sachs has ditched plans for a crypto trading desk, sending crypto prices into a panic. But this is actually good news. Goldman Sachs is instead focusing on a safe, long-term crypto strategy rather than volatile trading.

Bitcoin traders threw themselves into a panic on Wednesday as the market collapsed beneath them.

Bitcoin fell 13% in a day. Altcoins fell as much as 20%. Ethereum hit its lowest price in 12 months.

While other factors were at play for the selloff, many blamed Goldman Sachs, which reportedly sidelined plans for a crypto trading desk.

The Long-Rumored Goldman Sachs Crypto Trading Desk

Goldman Sachs began eying up bitcoin in October 2017. Rumors of a trading desk emerged after they hired Justin Schmidt, a veteran crypto trader. An official from the bank said they were looking into bitcoin possibilities after receiving interest from clients.

This news was among the flurry of optimism that sent bitcoin to $20,000 last winter.

However, nothing was confirmed. In fact, Goldman Sachs distanced itself from crypto trading in January when CEO Lloyd Blankfein said day-to-day trading was not the bank’s priority for crypto. Instead, they would consider buying bitcoin futures contracts for some of its clients.

So Wednesday’s news shouldn’t come as too much of a surprise.

Clearing up the Rumors

To be clear, Goldman Sachs has not ruled out the possibility of a crypto trading desk. The bank’s CFO even called the recent rumors “fake news.”

“I never thought I would hear myself use this term but I really have to describe that news as fake news.” Martin Chavez, CFO.

The bank is not ditching its plans. A crypto trading desk has simply moved down the priority list while they look at better ways to work with bitcoin.

So What Exactly is Goldman Sachs Doing in Crypto?

Right now, the bank is helping its clients get into crypto by executing bitcoin futures contracts. Bitcoin futures are a way of betting on the future price movements. Goldman Sachs is using the bank’s money (“providing liquidity”) to do this.

At the same time, they are working on some form of derivative for bitcoin. A derivative is like an exchange-traded fund (ETF); an easy investing product that would track the price of bitcoin.

A Safe Way to Store Crypto

Most importantly, Goldman Sachs is working on a custody solution that would allow institutional investors to store millions of dollars in crypto safely.

“Physical bitcoin is something tremendously interesting, and tremendously challenging… From the perspective of custody, we don’t yet see an institutional-grade custodial solution for bitcoin, we’re interested in having that exist and it’s a long road.” Martin Chavez, CFO

Good News for Bitcoin

Don’t believe the panic. Goldman Sachs’ strategy is a sound and sensible way to approach bitcoin.

Goldman first needs to prove it can store bitcoin safely. Can you imagine if Goldman Sachs’ bitcoin accounts were hacked? A custody solution is a necessary first step before traditional investors trust their money to a relatively new phenomenon.

Secondly, the bank’s focus on bitcoin futures and derivatives reveals a long-term approach to trading. They are taking cryptocurrencies seriously. They’re looking to build products their investors understand.

It’s no wonder a crypto trading desk is low on the priority list. They simply don’t yet have the infrastructure to store and handle millions in daily, physical bitcoin trades.

Not only that, but high-volume, daily trading at a Goldman Sachs trading desk would introduce yet more volatility to a volatile market.

Wall Street Isn’t Ready for Crypto Yet

Although Wall Street is dabbling in bitcoin, it’s not yet ready to fully embrace it. As we have seen with bitcoin ETF rejections, Wall Street adoption will take time. But, rest assured, the foundations are being laid.

“When we talked about exploring digital assets that it was going to be exploration that would be evolving over time… Maybe someone who was thinking about our activities here got very excited that we would be making markets as principal and physical bitcoin, and as they got into it they realized part of the evolution but it’s not here yet.” Martin Chavez, CFO.

Wall Street is getting on board, but this will not happen overnight. Patience is key.

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Circle is Rolling Out a Crypto Version of the U.S. Dollar
Goldman Sachs-backed start-up Circle is introducing a crypto version of the U.S. dollar. CNBC reports, “Circle is one of the most well-funded blockchain start-ups, with investors including Goldman Sachs Group and Baidu. The fintech company operates its peer-to-peer payment network using blockchain, the technology that underpins bitcoin.”

HTC Develops Blockchain Native Phone
HTC is working on the development of a phone called Exodus, designed to specialize in blockchain as well as decentralized applications. ZDNet reports, “Chen noted that Exodus will include the following: A built-in secure hardware enclave. Android. Support for protocols such as Bitcoin, Lightning Networks, Ethereum and Dfinity.”

Square Cash Growth Accelerating Faster Than Venmo Partially Due to Bitcoin
BlockExplorer’s Anthony Severino tells us “While it’s been widely reported that Square only earned $200,000 from bitcoin transactions in Q1 2018 since its January launch, Dolev believes that offering bitcoin may have helped spark the app’s accelerated growth, comparing Square Cash app downloads to Coinbase’s app.”

Image courtesy of Carty Sewill, http://cartyisme.com/

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News Bytes for May 3, 2018

Use our news to inform cryptocurrency trading decisions, stay up-to-date on happenings in the industry, and more!

Crypto Exchange BitGrail Legally Forced to Shut Down Just Three Hours After it Opens

Yesterday BitGrail Tweeted “BitGrail is pleased to announce the re-open of our exchange!” only to announce three hours later that “We have temporarily disabled the BitGrail exchange pending further notice.” Users quickly became irritable, some pondering if they were “getting robbed”. BitGrail quickly responded with a post to their web site that they were “notified of a deed by the court of Florence requesting the immediate closure of BitGrail and this situation will persist until a decision is made by the courts…”

SEC Mulls Whether Ethereum is a Security Under US Law

US regulators are cracking down on non-compliant securities issuers, and senior officials are set to meet to discuss whether that group includes the founders of Ethereum.

Telegram Scraps Public ICO as SEC Cracks Down on Token Sales

The company behind wildly-popular encrypted messaging app Telegram has scrapped plans to open its initial coin offering (ICO) to the public, says an anonymous source close to the matter.

Goldman Sachs To Open Bitcoin Trading Desk

Goldman Sachs, hiring their first cryptocurrency trader, becomes the first major Wall Street bank to open a bitcoin trading desk. Trading will start in the next few weeks, accordingly to a New York Times report.

Reddit Likely to Bring Back Bitcoin Payments, Add Ethereum and Litecoin Support

Cryptocurrency payments will likely be returning to popular social media platform Reddit, a company executive said on Wednesday.

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Goldman Sachs still denies it’s launching a cryptocurrency trading desk, but that may not be true for much longer.

Finance industry news site Tearsheet reports that the firm recently hired former securities trader Justin Schmidt — formerly a senior vice president at Seven Eight Capital — to become the investment bank’s first head of digital asset markets.

Citing sources familiar with Schmidt’s hiring, Business Insider says that he will not trade anything at Goldman Sachs  — cryptocurrencies or otherwise — though he will explore ways that the bank can make a deeper foray into cryptoassets. At present, the bank’s brokerage arm clears bitcoin futures for clients, though it does not trade them directly.

Despite hiring Schmidt, Goldman claims that it still has no plans to launch a cryptocurrency trading desk, which would allow institutional clients to make large trades over-the-counter (OTC)  — where they will not have a major effect on the cryptocurrency’s price — rather than through a conventional exchange.

“In response to client interest in various digital products, we are exploring how best to serve them in the space,” Goldman Sachs spokeswoman Tiffany Galvin-Cohen said in a statement. “At this point, we have not reached a conclusion on the scope of our digital asset offering.”

Bloomberg first reported in December that Goldman was quietly assembling a cryptocurrency trading operation, though the bank — and CEO Lloyd Blankfein — have denied on multiple occasions that this is the case. Sources told the publication that the bank intended to have the desk up and running by the end of June, though this timeline now appears to be in question.

While a variety of OTC cryptocurrency trading desks currently serve institutional clients — including one managed by Circle, a company that has received financial backing from Goldman — none are operated by a major US bank.

Barclays, one of Europe’s largest banks, is currently holding preliminary discussions about launching a cryptocurrency trading operation, though it has not yet decided whether it will proceed with these plans.

Featured Image from Pixabay

Popular Crypto Wallet, Blockchain.com has hired ex Goldman Sachs executive Breanne Madigan as the head of institutional sales and strategy in a bid to boost its presence with institutional clients, according to a new report published by CNBC.

According to Peter Smith, the CEO of Blockchain.com in a statement released to the press, “Breanne has a proven track record of adding value to her teams.” He continued “as Blockchain continues to grow, I can think of no one better to help scale our business.”.

Madigan, who until recently was the head of institutional wealth services at Goldman Sachs, a division whose total assets rose under her management to a record $1.4 trillion in 2017.

Madigan leaves a 13-year career with the investment giant Goldman Sachs for a cryptocurrency startup. During her time at Goldman, she worked in different roles including chief operating officer for the famed G10 foreign exchange business.

Hiring Breane Madigan shows Blockchain’s intent to boost the presence of institutional clients in the market. So far, institutional clients have not taken the leap that many people predicted after the launch of the futures last year.

For a lot of institutional investors, cryptocurrencies remain a volatile asset given the massive fluctuations the prices have recorded over the years. Bitcoin, for example, has seen a fall from grace to grass, as it hit an all-time of $19,000 in December before taking a hit, weeks after, which now sees it hover around $8,000.

Blockchain.com has 24 million wallets opened on its platform, and it recently launched a service for customers in the U.S to buy and sell digital currencies in a bid to compete with the likes of Coinbase.