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Goldman Sachs Pulls Back, but Will Jump Back In

Goldman Sachs Pulls Back, but Will Jump Back In
By Vin Narayanan
Date September 6, 2018

Goldman Sachs has pumped the brakes on its proposed crypto trading desk. Earlier this year, the investment bank hoped to begin trading bitcoin by the end of the third quarter. But its plans never came together. So now it’s moving on to crypto Plan B – building a custody solution for institutional investors.

So what went wrong?

Well, the fact that Goldman Sachs is now focusing on a custody solution for institutional investors provides the first hint. It means Goldman isn’t comfortable with the current solutions available in the market. And as we’ve been saying all year, until a secure custody solution (which is basically a way to securely hold large volumes of bitcoin) is built, institutional investors won’t enter the market. As far as Goldman is concerned, the current solutions are not good enough. So it’s building its own.

Goldman isn’t the only firm pursuing a custody solution. Coinbase has its own. So does Ledger. The parent company of the New York Stock Exchange is building one too. Once these solutions get built out to the point that institutional investors are comfortable with them, you’ll see the big money start to flow in.

The second aspect of Goldman’s decision to delay plans to launch a crypto trading desk is regulatory uncertainty – both in the U.S. and in Europe.

In the U.S., Goldman was looking for some regulatory changes that would help mitigate some of the risk in trading cryptocurrency, according to Business Insider. And in Europe, the EU is mulling over plans to regulate cryptocurrency exchanges and initial coin offerings.

Goldman already processes trades for clients who want to invest in bitcoin futures. And it’s pursuing its own custody solution. So it’s not out of the bitcoin market. It’s just waiting for sufficient infrastructure to be built out before it enters. That makes sense for an institution like Goldman.

The market – as usual – is overreacting to this news. As I write this, bitcoin is down about 6%. Ethereum and litecoin are both down double digits.

Institutional money is eager to get into the crypto market. The pent-up demand is definitely there. Now, some of the brightest minds in the industry are working on building the infrastructure necessary to let that happen. It’s just a matter of time. And when the institutional money does start flowing, prices will soar. So stay patient. Better times are ahead.

Good investing,

Vin Narayanan
Senior Managing Editor, First Stage Investor

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