Citing sources familiar with the matter, the Wall Street Journal reports that Goldman Sachs is in the early stages of planning an entry into the cryptocurrency markets, a move that would make it the first Wall Street behemoth to directly interact with bitcoin and other crypto assets.
The report notes that the bank has not fully committed to the plan, so it is possible that the proposal will be scrapped before it reaches fruition. However, a Goldman spokeswoman told the Journal that their clients have expressed interest in cryptocurrencies, and they are actively looking for ways to meet that demand:
“In response to client interest in digital currencies we are exploring how best to serve them in this space,” she said.
Aside from client interest, Goldman Sachs looks to benefit from the inherent volatility present within the cryptocurrency markets. Because traditional markets have been less volatile lately, investment banks like Goldman have posted sluggish revenues from their trading operations. Though the dramatic price swings within the crypto markets intimidate many investors, professional traders view this volatility as an opportunity to reap significant gains.
While liquidity was once a significant barrier to institutional traders, cryptocurrency trading volumes have surged in 2017. Bitcoin’s daily trading volume is currently about the same as Caterpillar, whose market cap is roughly equivalent to the total value of bitcoin in circulation, and total cryptocurrency trading volume is expected to surpass that of Apple — the most liquid company stock — within the near future.
Dimon Risks Becoming an Outlier
Goldman’s open stance to bitcoin contrasts with that of J.P. Morgan CEO Jamie Dimon, who recently called bitcoin a “fraud” and threatened to fire any employee “stupid” enough to engage with it. Whereas Dimon says bitcoin is “worth nothing,” Goldman has advised its portfolio managers that the cryptocurrency ecosystem is “getting harder to ignore.”
Indeed, while Dimon’s skeptical stance on bitcoin may still be the prevailing view among mainstream financiers, he increasingly risks becoming an outlier. The Journal cites a statistic from Autonomous NEXT that states more than 70 hedge funds currently invest in cryptocurrencies, and billionaire trader Mike Novogratz is reportedly planning a $500 million blockchain fund of his own.
Moreover, LedgerX — itself founded by former Goldman traders — is expected to begin offering derivatives to institutional investors, perhaps by the end of the year. Online retailer Overstock also recently announced its subsidiary tZERO has entered a joint venture to launch a SEC-compliant initial coin offering (ICO) exchange to provide institutional investors with greater access to this $2 billion market.
As Goldman Sachs told its portfolio managers earlier this year, “real dollars are at work” within the cryptocurrency industry. Those who refuse to admit this may soon find themselves left behind.