Goldman Sachs Is Not Ready to Enter the Crypto Market

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by Teuta Franjkovic · 4 min read
Goldman Sachs Is Not Ready to Enter the Crypto Market
Photo: nerdsfun / Flickr

Goldman Sachs Group Inc. doesn’t seem to be any closer to offering one the key services sought by clients still intrigued by cryptocurrencies amid this year’s collapse in digital-asset prices.

The head of digital asset markets at Goldman Sachs, Justin Schmidt, confirmed that there are concerns related to security raised by various clients in relation to crypto assets during a conference in New York. As the crypto market is facing a tough time tackling the bear, investors are trying to seek refuge in the form of getting security for their digital asset.

Goldman Sachs, the investment banking giant, had earlier made it clear that they won’t be joining the volatile crypto market.

He said:

“One of the things they ask me is ‘Can you hold our coins?’ and I say ‘No, we cannot. One of the things we have to take into consideration when we’re building out our business is what we can and cannot do from a regulatory perspective.”

From a regulatory perspective, it seems that there are things that are more limited in terms of what they can offer.

During a panel presentation at CoinDesk’s Consensus Invest conference, Schmidt said that clients are “quite curious” about the space and its price changes and how to keep assets safe. He also cited Bakkt’s futures exchange and Fidelity’s jump into the crypto arena with a new business to manage digital assets for hedge funds, family offices and trading firms.

“Custody is this foundational piece that is absolutely necessary. Custody is part of an overall integrated system where different parts need to work well with each other and safely with each other and you have to be able to trust all the different parts in that chain, from buying something to transferring it to storing it in for the long-term.”

Goldman Still Wants to Work With Crypto

Goldman Sachs is however still looking for ways to enter. They have been among the major Wall Street banks using alternative methods such as investing last month in custodial services provider BitGo Holdings Inc. to wade into the sector. It was also among the first to clear Bitcoin futures offered by Cboe Global Markets Inc. and CME Group Inc.

VanEck, an investment management firm, is still in the race for creating a Bitcoin Exchange Traded Fund [ETF] and the change in the crypto market might increase the pressure on Goldman Sachs to expand the horizons when it comes to client servicing.

Just for reminder, already in October, Goldman Sachs has reportedly started signing up a limited number of customers for its upcoming bitcoin trading product. They introduced a small number of institutional investors to its bitcoin non-deliverable forward contracts, but said that they will not be hurrying up to roll out new tradable products.

Also, today, a provider of Forex settlement and risk mitigation services, U.K.-based CLS Group, announced the launch of a net blockchain-based payment netting service called CLSNet. The job of CLSNet service is basically to help emerging markets to reduce the risks with post-trade settlement in foreign currency. The CLSNet app is the ”first global FX market enterprise application” powered by the revolutionary blockchain technology. First users of CLSNet are confirmed to be big giants like Goldman Sachs and Morgan Stanley.

Schmidt said that custody alone will not completely eliminate concerns over crypto as exchanges are at risk of cyber incursions and hacking. He explained that the continued research and development into crypto products and services is needed but, that the bear market and speculation that has waned over the latter part of the year, is actually a good thing:

“In many ways, the rampant speculation that has been quelled over the past several months is really healthy for the ecosystem and I very much look forward to companies that are actually providing institutional-grade products and services.”

Even though never officially, Goldman Sachs was often pro-crypto. Their ex-CEO and millionaire Mike Novogratz said that he believes that the cryptocurrency market will “flip next year”. He also said that “this year has been challenging” for his business, Galaxy Digital but that he believes they will eventually become “the Goldman Sachs of crypto”.

Novogratz also predicted that financial institutions will see a transition from “investing in cryptocurrency funds to investing in cryptocurrencies proper in the first quarter of next year.” He believes prices will start to move again next year.

Bitcoin, the largest cryptocurrency, has plunged recently, dropping more than 40 percent in November. It’s down more than 80 percent since the beginning of the year when it traded around $18,000. It’s now trading around $3,700.

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