Goldman Sachs Reneges on Crypto Trading Desk, Prices Tank

Goldman Sachs has reneged on its promise to launch a cryptocurrency trading desk and the market is getting punished. The Wall Street investment bank is shelving its plans — for now — to launch a crypto trading desk amid a murky regulatory landscape, Business Insider reports.

But it is not leaving traders entirely empty-handed, as Goldman will direct its efforts on a custody solution to keep institutional capital secure. But investors were anticipating more, and that’s sent cryptocurrency prices into a tailspin, including bitcoin, whose price plunged 3% in a matter of minutes and is currently barely trading above the psychologically important $7,000 level.

Source: Bloomberg

Goldman’s trading desk would have supported “physical cryptocurrencies including bitcoin,” according to Business Insider. They even tapped Justin Schmidt to spearhead the digital-asset effort and have been engaged in clearing bitcoin futures contracts that trade on the Chicago-based derivatives exchanges, the CBOE and CME, as well as supporting CFDs. Perhaps they put the cart before the horse, so to speak, in anticipating the regulatory structure a regulated bank like Goldman Sachs commands to operate. The backpedaling is a wake-up call to the cryptocurrency community that Wall Street’s role in this nascent market is unpredictable.

“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,” according to a Goldman spokesperson cited in Bloomberg.

Plan B

There is a lot hinging on institutional capital coming into the markets, as evidenced by the sharp sell-off that ensued in response to the Goldman news. But it’s not as though Goldman is abandoning its plans altogether, at least not for now, and they are focusing on another area of crypto that big investors need to keep their assets secure — a custody product. But it is Plan B, not Plan A, and it’s clearly a setback for the market.

Mati Greenspan, eToro’s Senior Analyst and a contributor, told Bloomberg: “The expectation of adoption by Wall Street has been a major theme for the cryptocurrency market for the last year, so any kind of updates on that can certainly move the prices. Even if it’s not true, it should be enough to cause a minor selloff like this in cryptocurrencies.”

Prior to the Goldman Sachs development, the markets were already showing signs of strain, particularly Ethereum, which was the subject of a scathing report in TechCrunch, one that sent the ETH price spiraling more than 10% as of press time. Meanwhile, bitcoin has also proven resilient in recent weeks, e.g., the bitcoin ETF setbacks, which is a feature that could prevent any further massive selling on the news.

Featured image courtesy of Shutterstock.

Gerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.