Cryptocurrencies and the underlying blockchain technology are gaining high level of acceptance among more mainstream institutions and investors. As institutional investment on cryptos rise rapidly, significant pressure is building on Wall Street Banks to accept Bitcoin (BTC) as a legitimate asset class.
Banking powerhouse Goldman Sachs is setting up a cryptocurrency trading desk after backing away from a previous effort to enter the market after bitcoin crashed in 2018, making it the latest institutional player to plow into cryptocurrencies, as Forbes reports.
This comes as a surprising move from the banking giant as they claimed “Cryptocurrencies including bitcoin are not an asset class,” in May last year. They even highlighted several reasons why cryptocurrencies couldn’t be considered an asset class in their own right, claiming they don’t generate cash flow likes bonds or earnings through exposure to global economic growth.
What lead Goldman Sachs to this move?
Goldman Sachs Group Inc. has been seeing substantial demand for digital assets from institutions in recent days. According to Matt McDermott, global head of digital assets for Goldman Sachs Global Markets Division, in a survey of nearly 300 clients by the firm, 40% currently have exposure to crypto.
Further he mentioned that, the situation is different now compared with the 2017 Bitcoin bubble, due to ‘huge’ institutional demand across different industry types and from private banking clients.
McDermott confirmed the plans reported in late February for Goldman to restart its crypto trading desk, which he said it will be ‘quite narrow initially.’ The desk will be a part of Goldman’s Global Markets segment, the bank’s largest division by assets and revenue as of last year, and will serve as a market-maker, buying and selling securities on behalf of clients but not actively managing cryptocurrencies itself.
Why Bitcoin asset class?
Rising number of BTC backed derivatives such as BTC futures & BTC options, and many other financial instruments have made its way to the market. The derivatives market and new investment products have made digital assets like crypto more easily accessible and appealing.
According to Fortune, some strategists posit that the asset class is a potential diversifier for portfolios, while others are more skeptical and blame speculators for inflating a possible bubble in BTC and other cryptos.
How will the future picture look like?
Banks, which generally face the highest regulatory scrutiny among financial firms because of the breadth of their operations and crucial role in the economy, have been largely reluctant to play in the crypto space, preferring to focus on related technology including blockchain.
As one of the six biggest U.S. banks decides to embrace BTC, it would be a major stamp of legitimacy for the nascent asset class. This wold add more glamour to the future of crypto and blockchain technology, by improving investor confidence in cryptos.