Barclays Considers Possibility of Cryptocurrency Trading Desk as Institutional Interest Grows
Barclays Plc is weighing the possibility of launching its own cryptocurrency trading desk, a move that would likely boost institutional adoption of the digital asset class. Though the bank later clarified that a crypto trading operation is not currently being developed, it did acknowledge that it had opened dialogue with clients.
Gauging Client Interest
Bloomberg reported Monday that Barclays is currently gauging institutional demand for cryptocurrency to determine if the new business model is feasible. Quoting unnamed sources, the report indicated that a preliminary assessment had been undertaken, although it is unclear what it revealed. The same source also said that a crypto-trading operation would require approval from CEO Tim Throsby and possibly Jes Staley, who also serves as a company CEO.
A spokesperson at the British bank later issued the following statement:
“We constantly monitor developments in the digital currency space and will continue to have a dialog with our clients on their needs and intentions in this market.”
Gauging Institutional Demand
Barclays is the United Kingdom’s second-largest bank by assets and its venture into crypto would likely spur wider adoption within institutional circles. For many, institutional capital is necessary to overcome liquidity constraints currently plaguing the market. For traders, ‘liquidity constraints’ generate extreme fluctuations in prices, which makes it difficult to gauge supply/demand characteristics in the market.
Goldman Sachs Group Inc. will become the first major bank to set up a virtual currency trading desk. The new business venture is expected to be up and running by the end of June, if not earlier, according to reports that first circulated in December. While Goldman will almost assuredly make markets in bitcoin, it’s unclear what other cryptocurrencies will be supported. Not surprisingly, Goldman strategists believe most digital assets are headed for zero, an opinion shared by the likes of Vitalik Buterin and others.
We’ve seen what ‘institutional demand’ can do for cryptocurrencies. The market enjoyed unprecedented gains in November and December amid news that major exchanges CBOE and CME Group were planning to launch bitcoin futures. Now, CBOE is championing bitcoin exchange-traded funds (ETFs) in its effort to democratize cryptocurrency.
Though initial uptake in bitcoin futures was tepid, this is expected to change as investors more averse to risk look for safer ways to enter the market. Futures are attractive to those who want exposure to bitcoin but do not want to own the cryptocurrency outright. Futures offer a regulated environment for trading bitcoin-based products without having to rely on unregulated exchanges and the threat of cyber theft that comes with them.
There’s enough evidence out there to suggest that many institutional investors are planning to venture into cryptocurrency (including George Soros). A survey carried out in November by Triad and Datatrek Research revealed that more than a third (36%) of institutional investors were considering buying bitcoin while 19% already did. Additionally, 41% of respondents said they thought bitcoin had similar store-of-value characteristics as gold.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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