Goldman Sachs has announced that it will start a Bitcoin trading operation using its own funds.
The firm will start with trading derivatives, and may extend its operation to trade client accounts holding Bitcoin and other cryptocurrencies.
According to a NYTimes article, Goldman is seeking regulatory approval to trade actual Bitcoins while simultaneously exploring risk management strategies to minimize downside risk due to the severe volatility of cryptocurrencies.
Goldman’s efforts to set up a trading shop will most assuredly lend credibility to Bitcoin, and perhaps have a halo effect on other cryptocurrencies, such as Ethereum, Litecoin, Stellar Lumens, Ripple and Cardano.
Goldman Sachs, Bitcoin and Circle
Goldman has not been passive in its exploration of Bitcoin and other cryptocurrencies.
The firm has made an investment in Boston-based cryptocurrency trading platform “Circle” which offers B2C (Circle Pay) and B2B (Circle Trade) cryptocurrency payment and trading options, respectively.
In contrast to Goldman’s willingness to experiment in cryptocurrencies, other prominent financial services firms and investors have been hesitant to commit.
Jamie Dimon has called Bitcoin a “fraud” (but then later indicated he regretted saying so) and Warren Buffett has referred to cryptocurrency speculation as “not investing“.
JPMorgan subsequently released a research report indicating that Bitcoin may make sense as a portion of a diversified investment portfolio.
This may be because Bitcoin is seen as a non-correlated asset. Ray Dalio of Bridgewater has identified good, uncorrelated bets as the “holy grail” of investing.
Noted gold “bull” Jim Rickards has referred to Bitcoin as a Ponzi scheme, bubble and fraud all wrapped together.
Regardless, Bitcoin has continued to rise in value, or hold its value for several speculative reasons.
A Relatively Low Risk Bet
IMHO any financial services firm has to take cryptocurrencies seriously.
Goldman’s investment in this area has the potential to pay off, but perhaps more importantly Goldman is learning along the way, educating itself on the process and addressing clients who may be interested in crypto.
New developments in cryptocurrencies, such as dividend cryptocurrencies and asset backed tokens are legitimate developments that could upend investment strategies in the future.
While the foundation of Bitcoin was built on removing the concept of “trusted third parties“, Goldman is exactly that.
As such the firm acts as a partner to individuals who want to experiment with crypto. Goldman wraps its brand around the highly technical, potentially scary topic, and holds the hands of intrepid investors while (hopefully) making money in the trading process.
We’ll have to wait and see what, if any, effect this news has on the price of Bitcoin, etc.
Bitcoin is trading this morning at over $9,000 per Bitcoin… Up over 500% since last year at this time.