How would Goldman Sachs Impact the Crypto markets? Read on to find its effect on the Crypto future & Ecosystem.

Goldman Sachs  Goldman Sach into Crypto Currencies:

CNBC has reported that a payment startup company, Circle, backed by Goldman Sach is planning to introduce a digital version of the US Dollar with a cryptocurrency attached to it. The circle also announced that it is investing $110 Million in the first investment round for this crypto currency – USD.

“It unlocks an incredible amount of power for the dollar,” said Jeremy Allaire, CEO of Circle. “It’s basically a dollar that operates on blockchain,” asserts Allaire in the following CNBC interview.

https://www.cnbc.com/2018/05/15/goldman-sachs-backed-start-up-circle-introducing-a-crypto-us-dollar.html?__source=facebook%7Ccrypto+

Circle’s approach to a play in Crypto market is distinctly different from other coin and/or crypto currency offerings. One of the arguments against currencies, such as, Bitcoin or Ethereum is that they are highly priced, and the attendant block chains do not offer any protection against price volatility. In addition, at a price near $10,000 Bitcoin does not offer an attractive option for a routine market use.

On the other hand, Circle proposes to offer a P2P USD coin using attendant blockchain technology that is founded on Bitcoin blockchain. It differs from Bitcoin blockchain such that it addresses a key issue associated with crypto currency use, volatility. The USD blockchain would require the Circle customers to hold $1 for every USD coin imparting stability to the currency. In general, once the US dollar – the prime fiat currency is transferred into the exchange or the participating bank – the corresponding coins can be transferred to anywhere in the world through Circle. At present, Circle runs on Ethereum technology, though Allaire would be open to consider other technologies.

Goldman Sach into Crypto Futures:

Earlier this month, Goldman Sachs confirmed that it will be introducing a Bitcoin trading desk due to high customer demands. In addition to trading for clients, it will also deploy its own capital in investment contracts linked to Bitcoin, and even trade Bitcoins in the future.

Crypto Futures

How Will it Impact Crypto Markets?

This is a 180-degree reversal by the Goldman Sachs where the CEO, Lloyd Blankfein, who only last year had said that digital currency was a “Vehicle to perpetrate fraud.” Among other Crypto believer at Goldman Sach is Rana Yared, the Managing Director of the Principal Investment Group who opined in a NY Times piece that “Bitcoin is not a fraud and does not have the characteristic of a currency,” though, “It resonates with us when a client says, I want to hold Bitcoin or Bitcoin futures because it is an alternate store of value.” According to Yared, the banks has also been getting enquiries from endowments and foundations that have received gifts in the form of cryptocurrencies, and the bank needs to meet their requirements. In a similar reversal, Justin Schmidt, the newly appointed VP and Head of the digital asset markets has also echoed his colleagues’ sentiments. According to him, the newly created position will fill the gap in the full spectrum of investments options that Goldman Sachs offers to its clients.

Crypto market trading has suffered from credibility and trustworthiness. Bitcoin price fluctuations are wild, and often undergo variations that seem irrational. Government agencies do not trust them, and many a foreign Governments have banned its trading. With every incremental acceptance of the Crypto markets, they are expected to gain more credibility, stability, and eventual mass-acceptance as a choice of investment or trading by public.

In view of public skepticism, Goldman will remain cautious initially. It will limit its Crypto market making service to a handful of clients and will scale it up gradually as its staff becomes more knowledgeable and confident in Crypto currencies. However, it is quite conceivable that Goldman’s move could be viewed as a major seeing function by rest of the banks. As Goldman’s experience base increases, more likely other banks will also set up their Crypto trading desks.

Acceptance by Goldman can impact Cryptocurrency trading in the following four ways:

  • A lifeline injected into the Crypto ecosystem,
  • Reliable and more agile crypto trading platforms/exchanges,
  • Reliable storage and accounting of the Crypto coins, and
  • Increased acceptance by Government agencies, and tax authorities.

Impact on Crypto ecosystem: An institution like Goldman can literally provide life line to the Crypto ecosystem through increased liquidity. Even though, touted as a common man’s darling, Bitcoin investment is risky in its current state. This has kept institutional investors, hedge fund managers, and endowment funds comptrollers shy away from large investments in these currencies. With Goldman investor’s large appetite for unpresented profits, the Crypto market could be more liquid, more agile, and more exciting again. This also brings up another issue. Professional traders, by nature, are adventurous, innovative, and incredibly analysis oriented. With more liquidity, stability, and experience – they will always innovate! With a corporate backing as that of Goldman, they will develop new financial instruments, derivatives, and exotic futures that will help grow the Crypto markets.

Reliable and More Robust Crypto Exchanges: Currently, the Crypto exchanges are tolerated as a necessary evil. Often these exchanges trade at an inordinately slow speeds, they get hacked, and investors are known to lose their life time savings through these exchanges. With the brokerage houses like Goldman lending its credibility behind Crypto trading, these exchanges are expected to behave like a traditional brokerage house. Rapid trades from full order books are expected to consummate the deal readily with far more accuracy.

Crypto markets are gaining respectability. Recently, LedgerX, the very first derivative exchange is offering the very first Federally approved Bitcoin Savings account. It can have returns as high as 20% to 25%. In addition, the current exchanges are not equipped with tracking the gains and losses from more than a handful of trades performed. This has also curbed the introduction of innovative products such as options and futures into the Crypto markets. All of this is expected to change as the major brokerage firms introduce their technology and knowledge into the Crypto markets.

Safety of Coins: Mt. Gox, Silkroad, and Cryptsy are some of the well-known hacks where investors have lost – may be a total of hundreds of Millions of dollars. These were exchanges founded by brilliant techies, who probably did not have sufficient background in Cyber-attacks. Once again, with the knowledge and experience of large banks, such as, Goldman – the safety of coins is expected to be higher. In addition, with the entry of banks into the Crypto space, Federal regulations will control the cons’ storage and dissemination. This will also help cryptos to gain more credibility.

Crypto Markets and Feds: Brokerage houses, such as, Goldman and Morgan Stanley have tolls that trek millions of trades in clients’ accounts and are able to compute profit and loss accurately in every account. The current crypto exchanges lack this capability, and that breeds suspicion on the part of Federal and State regulators. With Goldman and other large banks participating in the Crypto markets, the Feds will view Crypto trading more as a legitimate exchange, and not as a tax avoidance scheme. This is expected to benefit the Crypto markets in general.

 

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By | 2018-06-13T11:45:16+00:00 May 22nd, 2018|Crypto|0 Comments

About the Author:

Dr. Jayesh Mehta
Nationally recognized Advanced Technology leader with over 25 years in the Aerospace Industry. Sustained track record of providing innovative solutions to advancements in the gas turbine and alternate energy fields. Dr. Mehta is an innovator and a passionate financial analyst who has turned his attention now to intricate world of FOREX and Crypto trading education. Academically, Dr. Mehta shares Mr. Nirav Shah’s passion for developing algorithmic strategy based trading approaches for financial instruments applied to FOREX, Crypto, and Equity markets. As a part of his MBA in financial engineering at Xavier University, Dr. Mehta had developed and published several peer reviewed papers on Black-Scholes options models in flagship financial journals.

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