Earlier this week, Paul Vigna, a Wall Street Journal reporter, revealed that several key figures familiar with the matter confirmed that Goldman Sachs, the $93 billion investment bank, may launch a bitcoin and cryptocurrency trading platform in the upcoming months.
Goldman Sachs’ cryptocurrency trading division and strategic investment group are reportedly investigating into the plan of launching a cryptocurrency trading platform to provide sufficient liquidity towards institutional and retail traders. While sources close to the project told Vigna that it may not proceed, if Goldman Sachs pursues the launch of a cryptocurrency trading platform, it would be the first instance wherein a regulated mainstream bank would launch a cryptocurrency exchange for general traders and investors.
The motive of Goldman Sachs behind its plan to operate a trading platform for bitcoin and cryptocurrencies remains unclear. But, analysts speculate that it is likely due to the bank’s poor performance and decreasing revenue. Last year, according to the WSJ, revenue in its fixed-income division dropped by 21 percent, as most commodities and currencies declined in value. The launch of a new venture in cryptocurrency trading could spur the demand toward Goldman Sachs, in both the traditional finance industry and cryptocurrency sector.
Cryptocurrencies exchanges and trading platforms have evolved significantly since 2016. Coinbase, the world’s most widely utilized bitcoin wallet and cryptocurrency trading platform raised $100 million at a $1.6 billion valuation. Regional exchanges such as Korbit were also required at a valuation of hundreds of millions of dollars. Other global exchanges including Bittrex, Bitfinex, and Bithumb are also likely valued at over a billion dollars, in consideration of their trading volumes and user base.
Hence, while the cryptocurrency exchnage market could seem like a minor industry for Goldman Sachs to target, if the bank could penetrate the market through acquisitions, it would be possible for Goldman Sachs to operate a multi-billion dollar cryptocurrency trading platform within the US.
“Goldman’s effort involves both its currency-trading division and the bank’s strategic investment group, the people said. That suggests the firm believes bitcoin’s future is more as a payment method rather than a store of value, like gold,” wrote Vigna.
To the WSJ, a Goldman Sachs representative further emphasized that the financial institution is actively investigating various ventures to address the growing demand toward cryptocurrencies and bitcoin.
“In response to client interest in digital currencies we are exploring how best to serve them in this space,” the spokeswoman said.
Goldman Sachs is taking a fundamentally different approach to JPMorgan. It is beginning to acknowledge the shift in trend from traditional banking systems to cryptocurrencies, which are more efficient, secure, and cheap, due to their peer-to-peer nature. JPMorgan and its CEO Jamie Dimon have been completely dismissive of bitcoin, despite the criticism from experts and investors including prominent venture capitalist Chamath Palihapitiya and Goldman Sachs CEO Lloyd Blankfein.
Earlier this week, the Managing Director of the International Monetary Fund Christine Lagarde, stated at the Bank of England conference that bitcoin and cryptocurrencies are likely to replace banks and existing financial service providers in the future.
“For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks. Why? Because they are too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable. Many are too opaque for regulators; and some have been hacked. But many of these are technological challenges that could be addressed over time. Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies,” read the paper of Lagarde.
It is only logical for banks such as Goldman Sachs to be at the forefront of technological and financial disruption triggered by the emergence of bitcoin and cryptocurrencies, rather than positioning themselves on the sidelines.