Goldman Sachs will finally launch its widely-rumoured bitcoin trading operation after the investment banking giant succumbed to pressure from clients enthusiastic about cryptocurrency.
The move is set to make Goldman Sachs the first major Wall Street bank to open a bitcoin trading desk, however, it will only offer a limited number of derivatives at first. While Goldman will not initially be buying and selling actual Bitcoins, a team at the bank is looking at going in that direction if it can get regulatory approval and figure out how to deal with the additional risks associated with holding the virtual currency.
“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Ms. Yared, a Goldman executive overseeing the creation of the trading operation, said. “For almost every person involved, there has been personal skepticism brought to the table.”
Ms. Yared said Goldman had concluded that Bitcoin is not a fraud and does not have the characteristics of a currency.
But a number of clients wanted to hold it as a valuable commodity, similar to gold, given the limited quantity of Bitcoin that can ever be “mined” in a complex, virtual system. “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,’” she said.
The ultimate decision to begin trading Bitcoin contracts went through Goldman’s board of directors.
Growing Interest & Concerns
Over the last two years, a growing number of hedge funds and other large investors around the world have expressed an interest in virtual currencies. Tech companies like Square have begun offering Bitcoin services to their customers, and the commodity exchanges in Chicago started allowing customers to trade Bitcoin futures contracts in December.
But until now, regulated financial institutions have steered clear of Bitcoin, with some going so far as to shut down the accounts of customers who traded Bitcoin. Jamie Dimon, the chief executive of JPMorgan Chase, famously called it a fraud, and many other bank chief executives have said Bitcoin is nothing more than a speculative bubble.
Barclays CEO Jes Staley noted the potential of cryptocurrency to transform finance, however, said that he was still wary of its reputation of being used for criminal activities.
These same concerns were raised by Christine Lagarde, the head of the International Monetary Fund (IMF), in an official blogpost in March.
“Before crypto-assets can transform financial activity in a meaningful and lasting way, they must earn the confidence and support of consumers and authorities,” Ms Lagarde, Head of the IMF, said.
“An important initial step will be to reach a consensus within the global regulatory community on the role crypto-assets should play. Because crypto-assets know no boundaries, international cooperation will be essential.”