Goldman Sachs is ditching near-term plans to open a bitcoin trading desk - and instead focusing on a key business for driving Wall Street investment in crypto
- Goldman Sachs is putting on hold earlier plans to open a desk to trade physical cryptocurrencies, including bitcoin, according to people familiar with the matter.
- The bank is downgrading the plans as the regulatory landscape for crypto remains uncertain.
- Goldman is instead focusing its energy on a custody product for crypto that would better service large institutional clients.
Even Goldman Sachs, the Wall Street behemoth that trades in the markets' most esoteric assets, can't find a way to trade bitcoin.
The bank is ditching plans to open a desk for trading cryptocurrencies in the foreseeable future, according to people familiar with the matter, as the regulatory framework for crypto remains unclear.
As part of that decision, Goldman has moved earlier plans to open a desk for trading cryptocurrencies farther down a list of priorities for how it can participate in cryptocurrency markets, the people said. It may revive these plans at another point, they added.
But for now, Goldman is focusing on other projects such as a custody product for crypto, which would mean that the bank holds cryptocurrency and, potentially, keeps track of price changes, on behalf of large fund clients. Many market observers have said that for large institutional firms to get comfortable trading bitcoin, there need to be reputable custody offerings to safeguard holdings.
Despite months of expectation that Goldman would begin trading bitcoin earlier this summer, the investment bank has publicly preached patience as it studied the burgeoning industry. In recent weeks, however, executives have come to the conclusion that many steps still need to be taken, most of them outside its control, before a regulated bank would be allowed to trade cryptocurrencies, one of the people said.
A Goldman spokesman declined to comment. The firm already makes markets for clients in bitcoin futures, as well as contracts for difference, which allow an investor to bet on the price of bitcoin without owning the underlying asset.
Goldman has publicly tried to downplay its ambitions for creating a desk that trades physical cryptocurrencies, offering statements that it was still exploring the industry and trying to assess how best to serve customers. Over the last year, the price of bitcoin has fluctuated widely, and it now trades at $7,300 a coin, down from a high of more than $20,000.
Goldman's interest first surfaced in October 2017, when reports suggested the firm was beginning to study the industry with a group made up of employees in the currency-trading division as well as its principal strategic investments team.
In December, Bloomberg reported that the bank hoped to have the desk up and running no later than June. It was to be housed in the securities division, where the firm trades everything from stocks to bonds to currencies. And in April, the bank hired Justin Schmidt as the bank's head of digital asset markets.
In May, the NYTimes reported that a team at the bank was exploring a trading desk if it could get regulatory approval and come up with a suitable way of dealing with the added risk of holding cryptocurrencies. At the time, the paper said Schmidt was considering trading cash bitcoin if the bank could get regulatory approval from the Federal Reserve and New York state banking authorities.
The news coverage fed into the belief among industry participants that the bank would soon open its own trading desk.
And yet, it's run into a regulatory roadblock, one of the people said, without providing further details. The bank was looking for some regulatory changes that have yet to materialize and would have protected banks like Goldman from some of the risks unique to trading cryptocurrencies, the person said.
Lael Brainard, a Fed governor who has spoken publicly about the opportunities and challenges for virtual currencies, has cited extreme volatility, lack of governance and legal frameworks for protecting consumers, and vulnerability to money laundering, as chief concerns.
"This combination of a new asset, which is not a liability of any individual or institution, and a new record keeping and transfer technology, which is not maintained by any single individual or institution, illustrates the powerful capabilities of today's technologies," she said in a May 15 speech. "But there are also serious challenges."
As Goldman pivots, it will compete with a number of firms looking to become the provider of choice for clients looking for custody services. Coinbase, the bitcoin exchange, and BitGo are two crypto-first firms eyeing custody. Elsewhere, Fidelity, Nomura, and JPMorgan are exploring similar offerings.