Hong Kong, CHINA – News of one of the largest U.S. investment banks, Goldman Sacns pushing into cryptocurrencies should bring cheer to “hodlers” of digital assets, but to crypto-anarchists, the news will probably sound the death knell for libertarian, egalitarian ideals. To be sure, with profits waning in traditional markets and regulators reigning in the exotic derivatives which Wall Street became famous for after the Great Financial Crisis of 2008, it was only a matter of time before Goldman Sachs and its ilk looked towards greener pastures in search of profit. And with the frenetic 24-7 nature of cryptocurrency markets providing an all-too-attractive trading opportunity, it comes as no surprise that Goldman Sachs is thinking of carrying over derivative products from the traditional financial markets over to cryptocurrencies. Speaking with Bloomberg television in China, Goldman Sachs COO, David Solomon said that that bank is exploring cryptocurrency trades beyond the publicly traded derivatives that it already handles,
“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.”
According to Solomon, Goldman Sachs must “evolve its business and adapt to the environment.” Solomon, who is also the president of Goldman Sachs is widely pipped to succeed current Goldman Sachs CEO Lloyd Blankfein. And although the market for cryptocurrencies at US$284 billion is only a fraction of global trade in financial instruments and derivatives, estimated at US$8 trillion, pressure from clients as well as the generally unregulated nature of cryptocurrency markets have been drawing in big name investment banks such as Goldman Sachs and J.P. Morgan Chase. According to Bloomberg’s sources, Goldman Sachs is setting up a trading desk to make markets in the products and looks to have the business up and running by the end of this month. It is not clear if Goldman Sachs will be trading its derivatives products on CBOE or CME, which themselves already trade Bitcoin futures, or whether it will be seeking out other cryptocurrency exchanges, such as Kraken and Coinbase. According to Solomon, the firm already assists its clients in dealing in publicly traded Bitcoin futures.
And Solomon’s decision to speak to Bloomberg television in China should also not be viewed as a coincidence. Despite the Chinese being some of the most crypto-crazed people on the planet, Beijing has banned Bitcoin trading, cryptocurrency exchanges as well as initial coin offerings. It is not clear if that ban would extend to cryptocurreny derivatives, which strictly speaking do not trade in the underlying asset, for instance Bitcoin, but whose price derives from that underlying asset, hence the term “derivative.”