First Blythe Masters, Now Goldman Investing In Bitcoin

When Bitcoin first appeared, its proponents valiantly claimed that the revolutionary new digital currency was nothing more than a modernized version of a legacy non-fiat currency such as gold or silver, one which would allow global transactions seamlessly and without tracking by monetary authorities, but one which was more convenient than gold as one would never actually have to hold it - the "bitcoin" could be stored safely in virtual vaults that could be accessed anywhere in the world. Most importantly, it would be a libertarian statement of non-compliance with the fiat status quo.

Then MtGox happened and "unexpectedly" thousands of Bitcoin users found out they had been corzined, and their digital "money" - which supposedly was tracable - had disappeared forever.

Of course, fraud happens, so this humiliating incident to what was once the biggest bitcoin exchange was promptly brushed off.

But when a little over a month ago we reported that none other than former head of JPM's commodities head, Blythe Master, had reemerged from the shadows as chief executive of the Bitcoin startup Digital Asset Holdings, then all those who valiantly clung to the belief that Bitcoin is some aspiration to a libertarian, anti-status quo contrarianism, were promptly quieted.

As the FT reported then, the startup aims to be a venue for buyers and sellers of financial assets to meet and transact, switching currencies into bitcoin in order to cut the cost and time of settlement and make use of the decentralised “block chain” as a secure record of transactions."

There is a school of libertarian ‘visionaries’ who want to imagine a world without big banks, big governments,” said Ms Masters, who left JPMorgan last April. “That’s nice, but completely irrelevant to this business model. We don’t imagine a world in which big banks and big governments don’t exist.”

 

“They say they want the world to change, but the world will change by adopting new technology to do a better job,” she said. Reducing the frictional costs of financial transactions is “one of the great challenges of our time”.

She was right.

And just to hammer the point that Bitcoin has become the playground of precisely those who also control fiat money in all its infinitely dilutable permutations, earlier today we learned thart Goldman Sachs Group Inc. is one of two lead investors in a $50 million funding round for bitcoin startup Circle Internet Financial Ltd.

As WSJ reports, Goldman adds its name to a growing list of Wall Street institutions exploring digital-currency technology’s potential to provide faster and cheaper financial transactions and payments.

Circle, based in Boston, uses bitcoin-based systems to allow customers to digitally store money and transfer it to and from other people and merchants.

 

The new $50 million injection comes on top of $26 million in prior financing founds for Circle and, according to people familiar with the deal, values the startup at around $200 million.

 

Goldman declined to comment about its investment beyond a brief statement in the news release from Tom Jessop, managing director of the investment bank’s Principal Strategic Investments Group. He said the investment bank sees “significant opportunities in companies and solutions that have the promise to transform global markets through technical innovation.”

It wasn't just Goldman: "Goldman’s commitment to Circle follows investments by the New York Stock Exchange, Spain’s Banco Bilbao Vizcaya Argentaria SA and USAA Bank in San Francisco startup Coinbase, which runs a bitcoin exchange and competes with Circle in the market for bitcoin wallets, with which users store and send digital currency."

And if it appears that bitcoin has become a free-for-all for the TBTF banks, that's probably because it is. Earlier this month UBS said it would establish a special research lab to explore financial uses for the core technology underlying bitcoin—its so-called “blockchain” digital ledger.

And then there was the Fed, whose researcher recently said that “people see that in the long run the supply of bitcoin is capped and they see it’s demand growing, so in the long run you have to expect that it might be a good investment vehicle,” he said. “You might think the same about gold, but just because something’s a good investment vehicle does not make it a good currency."

Yes, we definitely know how the Fed and the BIS feel about gold.

The good news for those who still hold bitcoins is that with the benefit and full backing of the Fed-insured Goldman, Blythe and so on, the price of Bitcoin has nowhere to go but up: after all, the venture investments of the TBTF banks must be allowed to flourish. And with  documented instances of bitcoin manipulation, BTC is just the latest risk asset in the hands of a big bank.

The bad news is that any hopes and aspirations of making a libertarian statement against the status quo by transacting with a monetary medium that now has the full backing and endorsement not only of the biggest commercial banks, but the Fed itself, is now history.