A story circulated through the mainstream crypto media that Goldman Sachs was abandoning its crypto trading desk ended up being a fake news. Not only is Goldman Sachs not abandoning its crypto trading desk, according to its Chief Financial Officer (CFO) Martin Chavez, Goldman Sachs is looking to expand its operation by launching a Bitcoin derivative.
Martin Chavez says “I never thought I would hear myself use this term but I really have to describe that news as fake news”. The fake news made the rounds on 5 September 2018, the same day Bitcoin crashed from USD 7,400 to USD 6,400. Many people at the time speculated that the Goldman Sachs news helped drive this crash. Yet, the market hasn’t gone up since this fake news was reversed, suggesting it might just be a coincidental crash event.
Martin Chavez indicates that clients want a Bitcoin derivative, specifically saying “The next stage of the exploration is what we call non-deliverable forwards, these are over the counter derivatives, they’re settled in U.S. dollars and the reference price is the bitcoin-U.S. dollar price established by a set of exchanges”. Goldman Sachs is already settling Bitcoin futures contracts from the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) since May 2018. This new derivatives product Martin Chavez is talking about is like an in-house version of cash-settled Bitcoin futures.
It would be much better for Bitcoin, and much more groundbreaking, if the product Goldman Sachs plans to launch uses physical Bitcoins. However, Martin Chavez says “Physical bitcoin is something tremendously interesting, and tremendously challenging. From the perspective of custody, we don’t yet see an institutional-grade custodial solution for bitcoin, we’re interested in having that exist and it’s a long road”.
His argument isn’t entirely true, since Xapo, BitGo, and Coinbase offer institutional grade crypto custodianship that would be effective and sufficient for Goldman Sachs’ operations. However, it is unfortunate that Goldman Sachs is choosing to go with cash-settled derivatives – paper bitcoins, instead of actual bitcoins. Paper bitcoins are actually bad for the Bitcoin market, since they divert investment away from the spot market, causing Bitcoin’s price to be lower in the long-term than it would be if paper bitcoins didn’t exist. Unfortunately, paper bitcoins are proliferating on the Bitcoin futures markets in Chicago, on derivatives exchanges like BitMEX, and now Goldman Sachs.
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