Goldman Sachs Considers Offering Crypto Trading Operation

Wall Street and cryptocurrency have never really been friends.  There have been a few flirty glances between these two worlds over the past couple of years, but the general attitude is that these two are from “different sides of the tracks”.  

Some Wall Street bigwigs (looking at you, Jamie Dimon) have vocalized their outright distaste for cryptocurrency–it’s a fraud; it’s a bubble; whatever it is, it should not be touched with a ten-foot pole.

Things are changing.  In a recent report from the Wall Street Journal, Goldman Sachs may be planning to begin operations involving the trading of cryptocurrencies.  Bitcoin is likely to be the main digital asset that Goldman Sachs will work with, although it won’t be the only one.

In the past, Goldman Sachs has shown quite a bit more interest in cryptocurrency than its Wall Street peers.  Vice President of GS’s FICC Market Strats tea was the sole member of a Wall Street firm to publish a speculative report on the price of Bitcoin earlier this year.

According to the WSJ report, Goldman Sachs has yet to formulate its business plan.  It’s not yet clear what kind of trading options the bank will offer.  As of now, Goldman Sachs is consulting with cryptocurrency experts about understanding how these volatile assets work and the kinds of customers who might be interested in them.

Banks Are Slowly Opening the Door for Cryptocurrency to Enter

With the giant amount of attention (positive and negative) that cryptocurrencies have been receiving around the world, it seems only logical that simply writing cryptocurrencies off as fraudulent assets for foolish investors is at best unwise.

The truth is that many of the same financiers who scoff at the thought of blockchain and cryptocurrency clearly have an extremely limited technical understanding of how the technology works or how it could benefit a variety of systems across a variety of industries.  Warren Buffet, for example, has compared Bitcoin to checks.  

Yes, Mr. Buffet, it is indeed true that Bitcoin can be used as a means-of-payment, just like checks can.  But unlike cryptocurrency, checks aren’t worth anything themselves; they just order money from one place to another–and that’s not even the half of it.

In fact, the world of cryptocurrency is vastly more dimensional than more traditional means-of-payment.  For example, Bitcoin and Ethereum both act as settlement layers upon which decentralized applications can be built–Gnosis, Golem, and Augur, to name a few.

Additionally, cryptocurrencies themselves are decentralized, and provide many of the same financial services that banks do, except that they are more efficient, faster, and much less expensive.  

Perhaps it would be wise to take the advantages that using cryptocurrency has over traditional financial systems into account when thinking about the relationship of Wall Street to cryptocurrencies.  The early days of Bitcoin and cryptocurrency in general are mythologized (not completely inaccurately) as being a time of fringe anarcho-capitalists who preached the virtues of cryptocurrency while shouting fire and brimstone to big banks and government financial institutions.

Nowadays, it’s simply not accurate to call the global community of cryptocurrency users a “fringe” movement.  While Goldman Sachs may be at the forefront of Wall Street-based financial institutions in terms of involvement in the cryptosphere, other banks have flirted with the possibility of blockchain technology into their own systems of money storage and transference.

Some banks have taken further steps.  In September, Barclays, CIBC, Credit Suisse, HSBC, MUFG and State Street were revealed as the new partners in the so-called “Utility Settlement Coin” that would be used as a cryptocurrency for inter-bank asset transference.

The fact is that blockchain technology is and will continue to change the face of fintech for years to come.  Goldman Sachs is wise to jump on the train while it’s still rolling by relatively slowly and cryptocurrency is only just making an entrance onto the global fintech stage.  

Some analysts speculate that within ten years, a single Bitcoin could be worth anything from US$100,000 to US$1,000,000. While cryptocurrency is undeniably much more volatile than traditional investments, one thing is clear–the barrier of entry is likely much lower now than it will be in the relatively near future.