Illustrating a slow but growing trend, New York-based investment bank Goldman Sachs is dipping its toes in the cryptocurrency market by reportedly considering a new plan to offer custody for cryptoassets.
Goldman Sachs, led by chairman and CEO Lloyd Blankfein, is an international bank and its involvement in crypto could be just the game-changer the industry is waiting for.
Custody services involve holding securities on behalf of the funds, thus reducing the risk for clients.
Crypto exchange Coinbase was the first to offer custody services to its institutional clientele. The San Francisco-based exchange is currently the largest operator in the United States, with over 13 million users as of November 2017 and $1 billion in revenue.
As big as it is in the crypto world, Coinbase is still young. It is also fully invested in a single and admittedly volatile asset class – which makes institutional investors nervous.
Goldman Sachs, on the other hand, is an established investment banking firm with a long history of success. Goldman Sachs boasts the title of influencer in capital markets and it is likely that its entry into the cryptocurrency market as a custodian will ease the concerns of institutional investors and make them more eager to embrace cryptocurrencies as viable assets.
Losing their funds to hackers has always been the primary reason institutional players have avoided investing in cryptocurrencies. But now, this move by Goldman Sachs may encourage brokerage services to move into the cryptoasset space.
“In response to client interest in various digital products we are exploring how best to serve them in this space, At this point, we have not reached a conclusion on the scope of our digital asset offering”, a Goldman Sachs spokesperson told Bloomberg.
Goldman Sachs is certainly on the forefront of the glacial movement of banks embracing cryptocurrencies. It has been in the news because of its efforts to enter the cryptocurrency market by creating “its own, more flexible version of a future, known as a non-deliverable forward, which it will offer to clients.” In June, Goldman Sachs announced it was exploring cryptocurrency trading derivatives as well as “some other activities” in the crypto space.
According to COO David Solomon, the company aims to “evolve its business and adapt to the environment” with respect to digital currencies. This is quite a change from its stance in 2014, when Goldman Sachs argued that Bitcoin does not qualify as a currency. Just three years later, the firm said that institutional investors can’t ignore Bitcoin and other cryptocurrencies anymore; and in December 2017, rumors circulated about the company opening its own crypto trading desk. While Goldman Sachs has denied the trading desk rumors in early 2018, it has definitely softened its stance on cryptocurrencies, saying that crypto is “not fraud.” Since then, the investment group has unveiled plans to begin trading in cryptocurrencies.
BlockTower co-founder Ari Paul has said that the lack of trusted custodianship, as well as too few institutional cryptocurrency products, remain the last barriers to entry into the cryptoasset space by institutional investors. The Goldman Sachs move might just be the catalyst for a big wave of investment and a boost to the capital markets industry.
Goldman Sachs isn’t the only player: at least large Wall Street custodians are considering or developing cryptocurrency custody services. These include JPMorgan Chase & Co., the Bank of New York Mellon Corp., and Northern Trust Corp.