The cryptocurrency industry was hit with huge news on Wednesday night as financial giant Goldman Sachs announced plans to open a bitcoin trading exchange.
The Wall Street bank is one of the most recognizable names in finance. Now, the company has announced plans to launch a virtual currency exchange. The exchange appears to be the first bitcoin trading operation at a Wall Street bank.
The move is expected to lend additional legitimacy to the world of cryptocurrencies. At the same time, Goldman Sachs is preparing to gain exposure to the risk and volatility of the crypto industry. The bank will use its own money to trade with clients across a variety of contracts linked to the price of bitcoin.
Specifically, Goldman Sachs will create its own flexible version of a future, known as a non-deliverable forward. That product will be offered to clients.
Goldman Sachs will not be directly buying and selling bitcoin. However, a team at Goldman Sachs is exploring that possibility for the future. Assuming Goldman Sachs can get regulatory approval – and figure out the additional risks related to cryptocurrencies – the bank could become the world’s best-known bitcoin exchange.
Goldman Sachs is Aware of the Risks of the Crypto Industry
Goldman Sachs has acknowledged the risks of getting involved in the crypto industry. The New York Times cited Rana Yared, one of the company’s chief executives in charge of overseeing the creation of the trading operation, who said that the bank was well aware of the risks of the industry:
“I would not describe myself as a true believer who wakes up thinking bitcoin will take over the world,” Ms. Yared said in the interview with The New York Times. “For almost every person involved, there has been personal skepticism brought to the table.”
Despite the skepticism, the launch of a Goldman Sachs crypto exchange is huge news for the industry. The company is one of the most recognizable names on Wall Street. A few years ago, it was unthinkable for financial giants like Goldman Sachs to gain exposure to cryptocurrencies. Now, these same companies have watched cryptocurrencies become so large that they’re impossible to ignore.
Goldman Sachs is One of Several Major Financial Institutions Launching Support for Cryptocurrencies
Of course, Goldman Sachs is far from the only major financial company that has announced support for bitcoin. Over the last few years, a growing number of traditional hedge funds, banking companies, and institutional investors have gained exposure to crypto in different ways. Payment provider Square, for example, now offers bitcoin services to clients, while Chicago’s CME Group launched bitcoin futures trading in December 2017.
Nevertheless, some Wall Street firms have been outspoken about their skepticism towards bitcoin. Jamie Dimon, the Chief Executive of JPMorgan Chase, famously called bitcoin a fraud a few months ago. Many other traditional finance executives have echoed that sentiment both privately and publicly.
Why is Goldman Sachs Launching Bitcoin Futures Trading?
Why did Goldman Sachs launch a bitcoin trading operation? Well, as mentioned above, the industry has become too large for financial giants like Goldman Sachs to ignore.
As reported by The New York Times, Goldman Sachs had received inquiries from hedge funds regarding their acceptance of bitcoin. The company had also received inquiries from endowments, hedge funds, and other entities that had received virtual currency donations from bitcoin users and weren’t sure how to handle them.
The ultimate decision to begin trading bitcoin contracts went to the top of the company, where it was approved by the Goldman Sachs board of directors.
The first hints of Goldman Sachs entering the cryptocurrency industry came two weeks ago when the company hired Justin Schmidt as their first “digital asset” trader. That signing was reported by Tearsheet. Prior to working for Goldman Sachs, the 38-year old Schmidt was an electronic trader at a hedge fund called Seven Eight Capital. He left that position in 2017 to pursue virtual currency trading on his own.
The next step is for Goldman Sachs to secure regulatory approval from the Federal Reserve and New York authorities.
The cryptocurrency market is up across most of the board after the news was reported late Wednesday night. Stay tuned for more information as we learn more details about the Goldman Sachs bitcoin trading platform.