Goldman Bitcoin trading: what will be the impact?
Goldman Sachs will become the first Wall Street bank to open Bitcoin trading in the next few weeks, the New York Times has reported.
The bank’s customers will not be able to buy and sell Bitcoin – at least not yet. Instead, the bank will offer trading in Bitcoin futures – essentially bets on the direction of the market – and other derivatives. Initially, the service will be available only to large institutional investors.
Goldman will avoid buying and selling Bitcoins for now because of the risk of hacking and the lack of regulation around the currency. However, the New York Times said the bank plans to seek regulatory approval and is looking at ways to manage cyber risks.
Last month, Goldman hired Justin Schmidt, a crypto trader with a computer science masters degree from MIT and a background in quantitative trading – a branch of trading driven by algorithms and mathematical analysis. He will manage the firm’s Bitcoin operations.
When Mr Schmidt was hired, Goldman said the move was “in response to client interest” and the bank was still “exploring how best to serve them”.
The paper described the announcement as one that will “likely lend legitimacy to virtual currencies”, which it certainly will. Other banks have been sceptical of Bitcoin, with JP Morgan’s Jamie Dimon dismissing it as “fraud”, though he backtracked on his comments a little earlier this year.
So, what will be the effect for the rest of the sector? First, Goldman is unlikely to be the only bank moving in this direction. In the UK, Barclays has said that it has been gauging its clients’ interest in trading cryptocurrencies. The bank already made news in March when it allowed the UK arm of Coinbase to open an account, making it easier for British cryptocurrency investors to make deposits and withdrawals.
It’s almost certain that other banks will be planning their own approach to Bitcoin trading. However, Goldman’s announcement is likely to accelerate the process. Interest from investors will increase and more of them will ask their banks for similar services.
Another knock-on effect was on the value of Bitcoin, which rose sharply following the news.
Finally, it will be interesting in the medium term to monitor the effect this has on the current cryptocurrency exchanges. We don’t yet know how they will handle competition from Wall Street. It’s possible that they will be sidelined or even acquired but, equally, the two may come to coexist, with Wall Street serving the major investors and current exchanges handling independent investors.