NOTHING TO SEE HERE
In yet another example of “you see what you look for”, last week the market and the media took the report that Goldman Sachs was “shelving” its plans
to open a crypto trading desk as yet another sign that institutional interest was dwindling.
However, in a conference the following day
, Goldman’s CFO Marty Chavez denied the “news”, saying that their plans hadn’t changed.
The intriguing part of this sequence of events is not that the media succumbed to the temptation to publish unconfirmed reports (after all, rumor can sometimes be news).
Nor is it that the market started to slump soon after, and the report’s denial did not generate a rebound (which indicates that maybe the slump had nothing to do with the report?).
It’s that the crypto community seems to have been expecting a Goldman Sachs bitcoin trading desk announcement sometime soon.
Why is this expectation surprising?
It’s true that Goldman Sachs has been one of the pioneers among big Wall Street firms in its work with cryptocurrencies. It was one of the first to clear bitcoin futures for clients when they launched late last year. And, in May, itconfirmed plans
to set up a trading desk for cash-settled bitcoin futures. Neither of these activities, however, requires a significant investment or departure from standard procedure, since they act like the derivatives Goldman Sachs is already very used to handling.
Actual cryptocurrencies, however, are a different matter. Regulation is still uncertain, and bulge bracket financial institutions are unlikely to undertake any venture without the regulators’ explicit approval.
And, there’s the technological difficulties. Crypto custody (necessary for actual bitcoin trading) is complicated and expensive, and while several startups and a handful of established institutions offer an institutional-grade service, the “too big to fail” set – names familiar to the large funds – has yet to take this function on board.
What’s more, Goldman’s new strategy involves a shift away from
trading revenue (which can be annoyingly unpredictable) towards recurring fee income, with most of its recent investments supporting its retail lending business. While this doesn’t rule out new trading services, we need to recognize that the nature of the bank is changing.
Finally, if you look on the company’s careers page
, you’ll see that there are currently no job vacancies related to cryptocurrencies. Earlier this year, the firm hired digital asset traders
for the pending futures trading operation. But adding a new asset (actual bitcoin) in the near future would require additional talent.
Then, as if things weren’t confusing enough, more unconfirmed reports have suggested that Citigroup is launching a depositary receipt-like instrument to allow non-custodial trading of bitcoin. Is this rumor true? If so, it could be taken as big name institutional involvement, right?
And two regulated crypto exchanges have launched fiat-backed stablecoins, which could open up a slew of applications for institutional investors and traders. And yet bitcoin barely blinked.
What’s the takeaway from this crazy week? That work on the sector’s infrastructure is progressing fast, but carefully. And that headlines should be taken with a grain of salt.