By Bill Taylor, Fintek Capital
As one of the world’s best known financial institutions, Goldman Sachs is also a very savvy innovator and leader in developing new sources of business and revenue. Not always an easy name to like, Goldman none the less has always been a very respected and fierce competitor in virtually every corner of the world of money. So, with their latest announcement of possibly providing asset custody for cryptocurrencies, it seems another piece of a huge puzzle has gone into Goldman’s playbook.
True to form, G.S. is very secretive in its plans BUT if you take a look at their recent announcements and some of their investments, we may be able to see what this puzzle is a picture of.
First let’s take a look at what this puzzle is. Institutions (hedge funds, family offices, etc.) are extremely eager to get exposure to the cryptocurrency and digital asset space, the fastest growing segment of finance/trading on the planet. BUT, how? Sure, the first thing that comes to mind is a safe regulatory environment, but after that, there is so much more.
How, and where, do I execute the trade (let’s just say to buy bitcoin) and at best price? Then, how is it going to be valued and priced (yeah, auditors kind of like that)? After that, how can the positions be hedged? Well, all those things currently require separate accounts at different firms (futures/options, execution trading desks, secure custody, trust firms, etc.) which is a pain and cumbersome. So, how to put this puzzle together? It appears Goldman has all the pieces to this puzzle.
Let’s look at all the pieces they are holding:
- Goldman is already a fully regulated futures and options broker (hedging solved)
- They have applied to become a bank (loans for buying cryptos?)
- The firm has already set up an internal crypto trading desk for clients (proprietary trading next?)
- GS has invested in Circle, a global electronic payments and money transfer firm AND an OTC crypto execution firm AND AND they recently bought a crypto exchange (Poloniex)
- Now custody (or soon)
So let’s connect the dots. Oh I mean put the puzzle pieces together. I am a hedge fund (actually, we really are) investing in cryptocurrencies and digital assets. I call Goldman, and bingo, all my needs are met (or will/could be). A fully regulated and respected firm that can execute my trades, handle my hedging with bitcoin futures/options, loan me money if I want leverage, list me on a regulated exchange and solve my crypto custodian obligations demanded by my administrative and auditor firm. ALL UNDER ONE ROOF. There is nowhere on the globe that can do all this currently, BUT is Goldman Sachs putting the pieces of this new puzzle together? Looks like it.
Oh, and when (if) they do, GS is ready for the celebration party. The new CEO (David Solomon) is an electronic dance music DJ (D-Sol). So cool. Let the crypto puzzle be put together and get the party started.
Bill Taylor is Managing Partner at Fintek Capital & a frequent contributor to FintekNews