Goldman Sachs backs off launching Wall Street’s first bitcoin trading desk

Rudy
Mass, the New York Stock Exchange managing director and floor
governor, pictured during the Re/Max Holdings initial public
offering.
Reuters/Brendan
McDermid

• Goldman Sachs is putting on hold plans to open a desk
  to trade cryptocurrencies, including bitcoin, according to
  people familiar with the matter.
• The bank is downgrading the plans as the regulatory
  landscape for crypto remains uncertain.
• Goldman is instead focusing its
  energy on a custody product for crypto meant to better service
  large institutional clients.

Even Goldman Sachs, the Wall Street behemoth that trades in
markets’ most esoteric assets, can’t find a way to trade bitcoin.

The bank is ditching plans to open a desk for trading
cryptocurrencies in the foreseeable future, according to people
familiar with the matter, as the regulatory framework for crypto
remains unclear.

As part of that decision, Goldman has moved plans to open a desk
for trading cryptocurrencies further down a list of priorities
for how it can participate in cryptocurrency markets, the people
said. It may revive these plans later, they added.

But for now,
Goldman is focusing on other projects such as a custody product
for crypto, which would mean that the bank holds
cryptocurrency and, potentially, keeps track of price changes on
behalf of large fund clients. Many market observers have said
that for
large institutional firms to get comfortable trading bitcoin,
there need to be reputable custody offerings to safeguard
holdings.

After months of expectation that Goldman would begin trading
bitcoin earlier this summer, the investment bank publicly
preached patience as it studied the burgeoning industry. In
recent weeks, however, executives have concluded that many steps
still need to be taken, most of them outside its control, before
a regulated bank would be allowed to trade cryptocurrencies, one
of the people said.

“In response to client interest in various digital products, we
are exploring how best to serve them in the space,” a company
spokesman said. “At this point, we have not reached a conclusion
on the scope of our digital asset offering.”

The firm already makes markets for clients in
bitcoin futures as well as contracts for difference, which
allow an investor to bet on the price of bitcoin without owning
the underlying asset.

Goldman has publicly tried to downplay its ambitions for creating
a desk that trades physical cryptocurrencies, offering statements
that it was still exploring the industry and trying to assess how
best to serve customers. Over the past year, the price of bitcoin
has fluctuated widely, and it now trades at $7,300 a coin, down
from a high of more than $20,000.

Goldman’s interest first surfaced in October, when reports
suggested the firm was beginning to study the industry with a
group made up of employees in the currency-trading division as
well as its principal strategic investments team.

In December, Bloomberg reported that the bank hoped to have the
desk up and running no later than June. It was to be housed in
the securities division, where the firm trades everything from
stocks to bonds to currencies. And in April,
the bank hired Justin Schmidt as the bank’s head of digital asset
markets.

In May, The New York Times reported that a team at the bank was
exploring a trading desk if it could get regulatory approval and
come up with a suitable way of dealing with the added risk of
holding cryptocurrencies. At the time, the paper said Schmidt was
considering trading cash bitcoin if the bank could get regulatory
approval from the Federal Reserve and New York state banking
authorities.

The news coverage fed into the belief among industry participants
that the bank would soon open its own trading desk.

And yet, it’s run into a regulatory roadblock, one of the people
said. The bank was looking for some regulatory changes that have
yet to materialize and would have protected banks like Goldman
from some of the risks unique to trading cryptocurrencies, the
person said.

Lael Brainard, a Fed governor who has spoken publicly about the
opportunities and challenges for virtual currencies, has cited
extreme volatility, lack of governance and legal frameworks for
protecting consumers, and vulnerability to money laundering as
chief concerns.

“This combination of a new asset, which is not a liability of any
individual or institution, and a new record keeping and transfer
technology, which is not maintained by any single individual or
institution, illustrates the powerful capabilities of today’s
technologies,” she said in a May 15 speech. “But there are also
serious challenges.”

As Goldman pivots, it will compete with other firms looking to
become the provider of choice for clients looking for custody
services.
The bitcoin exchange Coinbase and BitGo are two crypto-first
firms eyeing custody. Elsewhere,
Fidelity, Nomura, and JPMorgan are exploring similar
offerings.

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