One day after the WSJ reported that in what appeared to be a stern rebuke to Jamie Dimon (who said last month he would fire any JPM employee found trading bitcoin), Goldman Sachs' leadership was weighing a new trading operation dedicated to bitcoin and other digital currencies, "in response to client interest in digital currencies" and was "exploring how best to serve them in this space", the bank appears to have opened up a can of virtual worms in this quiet feud between America's two most important banks on how they approach the revolutionary cryptocurrency asset class - which has been duly slammed by most "establishment" pundits - and the signals they send to the broader public, and so moments ago Goldman CEO Lloyd Blankfein tweeted that he is "still thinking about #Bitcoin. No conclusion - not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold."
Still thinking about #Bitcoin. No conclusion - not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.— Lloyd Blankfein (@lloydblankfein) October 3, 2017
As a reminder Goldman’s effort is still in its early stages and may not proceed, according to WSJ sources, and if Blankfein's tweet is any indication, the CEO of the world's most important investment bank may have gotten a few angry taps on the shoulder. Still, as we said yesterday, the firm’s interest could boost bitcoin’s standing among investors and fuel the debate around digital currencies, which were initially viewed as havens for illicit activity but are pushing further into the mainstream investment world.
As for Goldman's motivation it's simple: in a world in which trading in all other asset classes is slowing dying, commission collected on bitcoin could prove to be a cryptogolden grail for the bank as it seeks to "serve a growing cadre of institutional investors wagering on bitcoin."
As the WSJ added, its effort could eventually entail a team of traders and salespeople making markets in bitcoins, while keeping abreast of the day-to-day cryptocurrency market could also position Goldman to capitalize on further development of this market. Digital-currency proponents envision a world where coins will be widely accepted by online retailers and companies will use the tokens for cross-border commerce.
Meanwhile, the buyside is already well ahead of both banks as some 70 hedge funds now invest in cryptocurrencies, according to Autonomous NEXT. And as a handful of nonbank finance firms, such as DRW Holdings’s Cumberland Mining and Genesis Global Trading, already broker bitcoin trades for institutional investors that want to buy or sell larger amounts than exchanges could handle, Goldman is worried of falling too far behind.
And so is Jamie Dimon: now that Goldman has launched the first salvo, we wonder just what Dimon's U-turn will look over the coming months as he too realizes JPM needs to "get in on that."
That said, one should be concerned with the the squid embracing another illiquid asset-class. We suspect as far as volatility goes - you ain't seen nothing yet. With its fixed-income division revenues down 21% from last year through June, dragged down by poor performance in commodities and currencies (both near record lows in volatility), it appears Goldman is looking for another asset - with volatility - to trade, and to supercharge.
Of course, with Goldman eager to become a bitcoin "flow" trader, the only question is whether Goldman's prop traders will be long or short the suddenly embraced by the squid cryptoasset.