Goldman Sachs Cosigns Bitcoin With New Trading Desk

  • Goldman Sachs will allow clients to trade Bitcoin futures
  • In December 2017 Bitcoin prices hit $20,000

Goldman Sachs (GS +0.96%) is creating a desk at its New York headquarters that will allow clients to trade Bitcoin futures. The bank becomes the first regulated financial institution to offer such a service. It received multiple inquiries from hedge funds, foundations and endowments which had received donations from Bitcoin millionaires. Will Goldman Sachs cosigning Bitcoin increase confidence in the digital currency?

Why This Matters: The legitimacy bar for digital currencies has been raised now that Goldman Sachs is going to facilitate the institutional trading of Bitcoin. Interest in the currency increased over the course of 2017, which also caused volatility to skyrocket. The price of the digital currency tripled in the second half of last year, topping out at $20,000 before dropping to $8,000 in February of 2018. Bitcoin has been on a rebound the past couple of months and is now trading at $9,300.

Goldman Sachs is proceeding cautiously and will not trade actual Bitcoin initially. Instead, the bank will use its own money to trade Bitcoin futures contracts for clients. It will also trade non-deliverable forward futures where trades will be settled in the regulated currency it’s quoted in.

One of the leading cryptocurrency derivative exchanges in the world is BitMEX, run by CEO Arthur Hayes. The exchange offers derivative products to retail investors and has a daily trading volume approaching $3 billion. Bitmex made revenue of $83 million in 2017 and posted $21 million in revenue during January of this year. The company is on track to exceed its 2018 performance. “This is the best thing you could ever have. We make more money when the market goes down. We love this volatility,” said Hayes.

Situational Awareness: Bitcoin had a rough start to the year and suffered a major loss during the first quarter causing the price to plummet down 48%. Hayes believes we should be on the lookout for increased volatility in Bitcoin prices as more players enter the derivatives market for the cryptocurrency. “People have been lulled into complacency with a market that keeps going up every day.”

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