Goldman Sachs Back on the Crypto Track
According to the source, Goldman Sachs will relaunch trading of
cryptocurrency futures and Non-Deliverable Forwards (NDF). The Wall
Street giant simultaneously considers the possibility to open its
Bitcoin exchange-traded fund and offer cryptocurrency custody.
Goldman Sachs was one of the first traditional banks ready to offer
cryptocurrency trading operations back in 2018, while many other
financial institutions remained skeptical of crypto.
It backed off from its plans later that year because of the unclear
crypto regulatory framework. Bank executives stated that many decisions
needed to be taken on the broader political level for traditional
financial institutions to start dealing with digital currencies.
Store of value
Cryptocurrencies established as a new asset class and investment alternative for institutional clients within the past year.
The global pandemic shook the economies in 2020. Central banks cut
interest rates; governments initiated stimulus measures that led to
Conservative Wall Street found out that keeping amounts of fiat
currencies became risky and damaging and was forced to look for more
profitable investment options. Traditional financial companies added
cryptos to their portfolios as a store of value asset class.
Private corporations like Tesla and MicroStrategy poured billions of
dollars into Bitcoin, followed by multiple other companies with their
hundreds of millions.
Digital currencies, especially Bitcoin, generate much higher
returns compared to other investment assets. The leading crypto has
risen nearly 480% within the past 12 months. The second-largest Ethereum
(ETH) showed even higher (almost 600%) results.
Meanwhile, gold fixed the 24% annual growth, DJIA increased by almost 70%, and the Nikkei index grew more by more than 76% within the past 12 months.
The United States Office of the Comptroller of the Currency (OCC)
permitted the federally regulated banks and financial institutions to
provide cryptocurrency custody services back in July 2020.
Financial asset custody is a trillion-worth business. The crypto
custody services mean new clients and new streams of revenue. Banks
cannot afford to ignore the opportunity. For Goldman Sachs, it could be
the logical step to conform to the zeitgeist and remain competitive.
Especially when the Bank of New York Mellon, the oldest US bank and
one of the world’s largest asset managers, disclosed it is ready to
start crypto custody services later this year.
Banks into crypto custody: what to expect?
Custodian banks hold their client’s financial assets for
safekeeping. They operate trillions dollar-worth of assets under
management and get paid by charging fees for their services.
It’s a big business, which has even bigger potential to grow with
institutional investors creating new demand. When the new
institutional-grade crypto custodians (like traditional banks) enter the
market, they will definitely take their share from current
crypto-focused custodians like Coinbase or BitGo. The industry may
potentially expect increased competition, usually resulting in better
services and lower fees.
Over $3 billion of digital currencies were stolen by hackers from cryptocurrency wallets back in 2020 — around $112.12 million through a single hack.
Digital wallets are a profitable target, and their cybersecurity one
of the biggest challenges for crypto custodians. Institutional-grade
crypto custody providers will have to face the higher cybersecurity
requirements and look for innovative security measures and technologies
that could gradually contribute to a more secure crypto space in
Opportunities for infrastructure providers
Since financial institutions have the OCC permission, there should
be no surprise that they will eventually set up a crypto custody
service. The process, however, requires time and specific knowledge.
As not all traditional banks have their in-house experts on how to
handle the new service properly, the crypto industry (and especially
infrastructure providers) may expect multiple acquisitions and
partnerships with the traditional financial entities.
Adoption of leading cryptos
Retail clients and institutional investors are showing their
interest in digital currencies. And gradually, traditional banks will
open for them too. But since they are highly cautious about challenges
related to cryptocurrencies (like volatility or regulatory uncertainty),
their shift towards digital currencies may be limited to a few biggest
cryptos like Bitcoin or Ethereum. As this happens, it may have a
positive impact on the prices of the leading cryptos.
On the Flipside
- The extreme price fluctuations are common for Bitcoin and other cryptos, high volatility leading many investors to remain cautious or skeptical.
- Former Goldman Sachs CEO Lloyd Blankfein warned that regulators could act against Bitcoin if it continues to grow.
- Bitcoin established its narrative as a store of value but is not yet
fully considered a mainstream investment form. Younger generations are
onto crypto, but the majority still need encouragement and education on
- Neobanks are the growing financial sector, expected
to increase their market share in business accounts until 2028
massively. Neobanks are already replacing banks in terms of popularity
between younger generations.
The US biggest banks and their stance on cryptos
JPMorgan Chase, the largest bank in the United States and the 5th
largest on the planet by total assets, accepted clients from Coinbase
and Gemini crypto exchanges since May 2020 but did not hold transactions
in cryptocurrencies itself.
The bank might be soothing its position towards digital assets,
though. The industry insiders say that it has issued a request for
information (RFI) to explore digital currency custody in January 2021,
although the bank has not officially confirmed this.
Bank’s CEO Daniel Pinto said
a few weeks ago, he is confident that institutional demand for Bitcoin
will spike in the coming months, and JPMorgan will have no choice but to
The banking giant tested its own JPM Coin last autumn for international payments between corporate customers.
The third biggest US-based financial giant Wells Fargo Bank has
banned its users from purchasing Bitcoins with their credit cards back
in 2018. Since then, the bank has been cautious about digital assets
mainly due to the crypto space’s regulatory uncertainty.
Last month, however, Wells Fargo invested $5 million
into a crypto intelligence start-up, which helps banks identify crypto
exchanges that comply with strict regulatory rules and detect illicit
Citi Group, one of the world’s top investment banks, recently triggered the crypto industry to report that Bitcoin could become a “currency of choice” for international trade.
The bank hasn’t been vocal about cryptocurrencies for years. However,
its CEO Michael Corbat revealed last December that Citi is
collaborating with governments worldwide to help issue their own Central
Bank Digital Coins (CBDCs).