Most large banks have traditionally avoided investing in cryptocurrencies like bitcoin, which are viewed as too controversial and scandal-plagued to associate with. But that may be changing, as Goldman Sachs is taking steps to create the first bitcoin trading operation on Wall Street.
Goldman, who hired former Seven Eight Capital electronic trader Justin Schmidt as its first digital asset trader, plans to use its money to trade with clients on bitcoin-linked contracts. They will also offer a flexible future called a non-deliverable forward to their clientele. Goldman will not buy and sell bitcoin upon launching their new service, though the team in charge of the new program left open that possibility in the future (pending regulatory approval and ability to negate the risks that come with holding the currency.)
The past two years have seen cryptocurrency prices and profiles boom – even so, traditional, well-established institutions have been slower to come on board to what they perceived as a regulatory minefield. But they have had a hard time ignoring skyrocketing prices, and with payment services like Square now offering bitcoin services and some commodity exchanges trading bitcoin futures contracts, it appears cryptocurrencies are well on their way to the mainstream.
The decision is not without risk – the same uncertainties about future regulatory climate that precipitated bitcoin’s sharp decline in value earlier this year remain, and the company needs to find a way of securing their holdings that meets Wall Street standards. But Goldman’s board of directors ultimately approved the decision to begin trading bitcoin contracts after ensuring its legitimacy, having found it increasingly difficult to ignore inquiries from its clients about digital currencies. Some were clamoring to hold it as a limited-supply commodity, like gold; multiple hedge funds and endowments reached out asking for advice on how to handle crypto that had come into their possession. “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,’” said Rana Yared, part of the team of Goldman executives assigned to the project.
The banking giant remains realistic in assessing digital currencies – “I would not describe myself as a true believer who wakes up thinking bitcoin will take over the world,” said Yared. But one of the world’s biggest banks showing interest in bitcoin is a major legitimizing factor for all cryptocurrency. This is a logical step as Goldman works to position themselves as the most technically-sophisticated firm on Wall Street – and they remain acutely aware of the consequences. “It is not a new risk that we don’t understand,” added Yared. “It is just a heightened risk that we need to be extra aware of here.”