Goldman Sachs executives have a love-hate relationship with cryptocurrency. After word surfaced late last year that the financial giant would be pursuing the launch of a cryptocurrency trading desk, it reversed course on the matter this past September. Now, just a little more than two months later, it looks like the company has, once again, flip-flopped on its decision and is contemplating a full-blown crypto trading platform that isn’t limited to just crypto futures products.
Goldman Sachs is one of the largest investment banks in the world. It has a market valuation of around $87 billion and is a highly respected financial institution. The company’s chief operating officer, David Solomon, told Bloomberg TV that it will be moving away from publicly-traded derivatives and futures, opting instead for large capacity trading.
The purpose behind the transition is to support more institutional investors and Solomon added, “We are clearing some futures around Bitcoin, talking about doing some other activities there, but it’s going very cautiously. We’re listening to our clients and trying to help our clients as they’re exploring those things too. Goldman Sachs must evolve its business and adapt to the environment.”
The statement is a bold one, and indicates the first time that someone from the company has publicly admitted that it is supporting cryptocurrencies. It is also the first time that the firm acknowledges that it plans on growing its crypto division to support increasing client demand for digital assets.
While there aren’t many traditional financial powerhouses currently involved in the crypto industry, this is changing. JPMorgan and Fidelity Investments are getting involved and an entry by Goldman Sachs could lead to further legitimacy of crypto. JPMorgan’s Nikolas Panigirtzoglou, a global market strategist, asserted that the futures market has already proven to give crypto a boost among investors and that the introduction of additional futures and exchange-traded funds will pave the way to further adoption.
This won’t happen overnight, however. A number of analysts have pointed out that stable custodianship of crypto assets is still not possible and probably won’t be until sometime later next year. The creation of a suite of institutional products for the crypto sector could go a long way in convincing large-scale institutions to dive into crypto, and products offered by Goldman Sachs, Fidelity and others would be the perfect response.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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Back of the envelope calculation reveals crazy amounts of zeros. Goldman Sachs, $916 billion; ICE, $78 billion; Fidelity, $2.1 trillion; NYSE, $23.2 trillion—whether including assets under management, total assets, or even market capitalization, trillions of Wall Street dollars are beginning to pivot toward cryptocurrency, and I didn’t even include JP Morgan.
It’s fair to point out fractions of those amounts are actually being spent in the name of crypto, but the fact remains heavy, heavy hitters are slowly beginning to realize digital assets are to be taken seriously.
Intercontinental Exchange (ICE) are Yanks who own a dozen legacy exchanges, including the grandaddy, the New York Stock Exchange (NYSE). ICE announced recently its as-yet created crypto exchange, Bakkt, will green light, if all goes well, December 12, 2018, as these pages reported.
The Adam White component
The plan appears to be offering physically settled futures, as Bakkt holds the Bitcoin backing futures, in what’s being called the ICE Digital Asset Warehouse. Of the several advantages is one stop shopping for whales: contracts are to be cleared through ICE Clear US. The press release explained, “Each futures contract calls for delivery of one bitcoin held in the Bakkt Digital Asset Warehouse, and will trade in U.S. dollar terms. One daily contract will be listed for trading each Exchange Business Day.”
Bakkt made even more news this month, albeit not in as grand a fashion. A Medium post by CEO Kelly Loeffler boasted of bringing Adam White, formerly of Coinbase, to its founding team. White’s significance is at least two fold. He is to head operations as COO, beginning in November, and so the deck is being assembled in hopes of providing confidence to insiders surely looking on.
Adam White is also defecting from the crypto world, having been the fifth employee ever hired by the largest bank slash exchange in the ecosystem … now valued at $8 billion. Those who might have been wondering if Wall Street was ready to take the sort of leap Bakkt is pushing, can be assured by White’s crypto street cred.
The language of Wall Street
Bakkt’s model is to take out stereotypes built and promoted by conflicts of interests perpetuated by legacy business news media. For example, favorite sayings in the workaday corporate world often involve ‘risk.’ Loeffler address risk, “Our patent-pending market model is focused on mitigating risk while creating opportunities for institutions to serve their clients in a regulated framework for digital assets. This means creating a solution that both provides wanted exposure and limits unwanted exposure.”
The language is designed to entice institutional wallets, and she’s rather wonderful at it. Their proposed conservative market model involves “a requirement of full prefunding for all Bitcoin trades, allowing clients to onboard directly to the warehouse, meaning that clearing members will not be required to handle cryptocurrency themselves, and a new, separate guaranty fund for Bitcoin, fully funded by Bakkt and ICE, helps ensure that non-defaulting clearing member capital is not at risk in the waterfall,” she explained.
The bottom line for Wall Street is put well in her conclusion, as she believes “the sooner a regulatory approach to digital assets is determined, the better positioned we are to support healthy markets and innovation within a dynamic global marketplace.”
Bear market bargains
All of this is happening in a decidedly bear market, of course. Undeterred, smart money tends to do the buy low, sell high dance—and the present tune is all about positioning. Talk has even spread to the expectations game, with a recent report by Abacus Journal regarding JP Morgan and Bakkt.
JP Morgan, of course, is notoriously coy when it comes to crypto. Ecosystem foil, Jamie Dimon, is among the most quotable haters in the world. A good of rule of thumb with these fools is not to listen so much to what they say but, rather, watch what they in fact do.
Abacus claims to have spoken to “two staffers at the firms’ global headquarters who have been working on the relationship between Bakkt and JP Morgan. Let’s just say they didn’t disappoint and their comments just may represent how every global investment bank is planning to engage with Bakkt.”
Starbucks
One of the sources has been at JP Morgan for over ten years. The import here is how Bakkt provides easy landing into crypto, an area many JP Morgan investors are itching to explore, if the source is to be believed. The source explains further, “If I was forced to disclose where we are headed, take a look at the products that Goldman has become comfortable with and that is what we seem to be comfortable with at this time. Not confirming any product or offering, but I can speculate that we will have a trading desk and that clients will be able to access Bitcoin, via Bakkt, in some way shape or form.”
With a little over a month to go until Bakkt makes its formal entrance, another source explains the sleeper power the deal announced with Starbucks placed ICE’s project. “You may be interested in this fact: Starbucks occupies the largest mobile app payments ecosystem in the United States. Bigger than Apple Pay, Google Pay, and Samsung Pay – with 23.4 million users,” this person tells Abacus.
And speaking of Goldman Sachs, at least one report suggests they have customers ‘getting ready’ to actively trade their derivative. Guess which trading platform the Goldman custody offering will employ? Bakkt.
Cold water
Goldman too has played the expectations whisper, biding their time, even pulling back a proposed crypto trading desk this year. Abacus Journal, again, roots out sources willing to spill the beans in an anon fashion. “All of the pipes, levers, and ‘factories’ that are being constructed to process billions of crypto trades per day will eventually all work together. Bakkt, Fidelity, Nasdaq, ErisX – all of them will eventually clear trades from a place like Goldman Sachs on a daily basis. These firms are just providing access and ‘regulatory insurance’ via custody and some warehousing services. Goldman choosing to work with Bakkt is a nice headline today but may be irrelevant by late 2019.”
Indeed, as quickly as the financial press gives, of course, it can take away. Business PR folks are masters at manipulating journalists in search of clicks and headline fires. Floating rumors gives the company a chance to gauge initial reception to a less than conventional idea, and crypto for sure qualifies.
Newly formed crypto news site, The Block, contrasts Goldman’s supposed entry into the space with that of BlackRock, the multi-trillion dollar asset management company. CEO Larry Fink has long maintained there to be very little relative interest in crypto. This Summer, he stated flatly, “I don’t believe any client has sought out crypto exposure. I’ve not heard from one client who says, ‘I need to be in this.’” Mind the head fakes, Dear Reader. Watch, don’t listen. Watch.
C. Edward Kelso is a financial technology journalist based in Southern California. Follow him on Twitter.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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Investment giant Goldman Sachs has led a successful $59 million Series B funding round in crypto custodian service BitGo, in the latest example of a major Wall Street institutional investor backing the cryptocurrency sector.
With the conclusion of the funding round this week, the latest round of funding takes the total backing for the firm to $70 million.
Goldman Sachs are joined by Galaxy Digital Ventures, the fund founded by prolific cryptocurrency investor Mike Novogratz, in backing the firm, with $15 million contributed to the total between them, Bloomberg first reported.
BitGo founder Mike Belshe said that the challenge for the firm remained convincing investors of the merits of cryptocurrency as an investment asset class. He said, “If you were investing in any other asset class, you’re probably not worried about the asset just disappearing—but this one, people still have that fear…we’ve got to conquer that.”
BitGo was founded back in 2013, and manages as much as $2 billion in assets across 95 cryptocurrencies. Following recent regulatory approval from regulators in the South Dakota Division of Banking, the firm has become the first regulated crypto custodian of its kind.
The backing of high profile names like Goldman Sachs and Galaxy Digital Ventures will lend even more credibility to the startup, as it looks to increase its assets under custody,
Managing Direct of Principal Strategic Investments at Goldman, Rana Yared, said institutional investors required secure and regulated custody before considering investing in crypto assets: “Greater institutional participation in the digital asset markets requires secure and regulated custody solutions.”
“We are impressed by BitGo’s product, unique services, and the management team. We view our investment in BitGo as an exciting opportunity to contribute to the evolution of this critical market infrastructure,” Yared said.
The investment comes at a time of increasing activity in the crypto custody space, including from legacy financial firms looking to diversify into this emerging market.
Fidelity Investments, which manages assets worth $7.2 trillion, has recently announced the launch of a new company to provide crypto custody services, while Goldman Sachs themselves are reported to be considering custody products. The BitGo funding comes as another solid vote of confidence in the cryptocurrency sector from major banking and financial institutions.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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Goldman Sachs-backed cryptocurrency company Circle is now the proud owner of an equity crowdfunding platform. The firm has reportedly purchased SeedInvest as part of its plan to become a complete blockchain-based financial company.
Circle reportedly acquired SeedInvest last week, according to an announcement on the company’s website. The acquisition is seen as a strategic move by the company, which also bought Poloniex earlier this year, toward a loftier goal of being a central hub for any type of crypto activity. Circle has also launched its own stablecoin, the US Dollar coin, as part of that plan.
Circle indicated, “The SeedInvest product includes many of the end-to-end capabilities needed for executing regulated crowdfunding, including startup due diligence, securities issuance, investor accreditation, payments and securities custody, as well as a broad range of innovative tools for startups to market their crowdfunding offerings online in a compliant fashion. With the merger and approval from key regulators, these capabilities will be expanded to support crypto-denominated investments including using fiat stablecoins such as USDC, as well as issuing and offering tokenized securities.”
Jeremy Allaire, the company’s CEO, expects that there will be a huge migration toward blockchain technology by all financial institutions within the next couple of years. He told CNBC in an interview recently that, “if we zoom out, there’s going to be this tokenization of everything.” He further predicts that “eventually these marketplaces will have tens of thousands, if not hundreds of thousands of assets — so the next piece was a broker dealer.”
SeedInvest CEO Ryan Feit asserts that the platform’s strategy is similar to that of blockchain startups looking for funds. He said of the crowdfunding platform, “we’re chasing a similar vision of changing the way businesses raise capital. It’s a different form of enabling companies to raise money, and another form of alternative assets for investors.”
The acquisition of SeedInvest is only in its early stage. In its announcement, Circle indicates that it has signed a definite agreement to buy the company, but adds, “This acquisition and planned new offerings are subject to FINRA [Financial Regulatory Authority] approval.”
New York-based SeedInvest is reportedly the largest equity crowdfunding platform in the US. It has a network of more than 200,000 investors and has generated “triple-digit annual revenue growth.” In its “Inc. 500 List,” Inc. Magazine ranks the company as the fourth fastest-growing financial services firm in the US.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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Cryptocurrency wallet service and investment startup Circle has created a new cryptocurrency—the USD Coin (USDC)—which is pegged to the US dollar and backed up by physical reserves of fiat held by company.
The Goldman Sachs-backed company’s stablecoin allows the tokenization of physical currency, in a bid to serve cross-border transactions with fast settlement on a blockchain. Crucially, because the USD Coin is pegged to and matched by U.S. dollars on a one-for-one basis, its value is designed to remain stable—an important feature for institutional actors.
In a statement, Circle co-founders Jeremy Allaire and Sean Neville said that USDC would help the firm realise its vision of the future of international transactions.
“Just as HTTPS, SMTP and SIP enabled free borderless information sharing and communications, crypto assets and blockchain technology will enable us to exchange value and transact with one another in a similar way: instantly, globally, securely and at low cost,” according to the Circle executives.
Initially previewed back in May, the project has gone on to raise capital at a valuation of $3 billion, following a Series E funding round led by mining group Bitmain.
The stablecoin is distinct from other similar projects in that multiple issuers will be supported, through an open source consortium called CENTRE.
Issuers are required to hold relevant licensing and regulatory approval, but the model will allow for decentralised control of issuing USDC through consortium members.
Some 30 partners have agreed to work with the project from launch, including merchant payment service BitPay. Commenting on the project, BitPay CEO Stephen Pair said they were fully behind CENTRE and the USDC.
“BitPay has always been supportive of open source crypto communities and blockchain initiatives and likes the direction CENTRE is taking with USDC,” Pair said. “We envision a future where all digital assets and payments live on the blockchain.”
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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