Ride the Lightning

Wall Street Poised to Embrace Cryptocurrency

May 10, 2018

As a follow up to yesterday's post, it was interesting to read an article in The New York Times. The article reported the parent company of the New York Stock Exchange has been working on an online trading platform that would allow large investors to buy and hold Bitcoin.

The news of the virtual exchange, which has not been reported before, came after Goldman Sachs went public with its intention to open a Bitcoin trading unit — likely the first of its kind at a Wall Street bank.

The moves by Goldman and Intercontinental Exchange, or ICE, the parent company of the New York Stock Exchange, is fairly remarkable as Bitcoin is known primarily for its underworld associations and status as a high-risk, speculative investment.

Banks seem nervous about losing their place in the financial world. Bitcoin was intended to be used by consumers for all sorts of transactions without any financial institutions getting involved (you can imagine how banks hate that) and it now has become primarily a virtual investment, stored in digital wallets and traded on mostly unregulated exchanges around the world. People buy Bitcoin in the hope that its value will go up, as they might purchase gold or silver.

Could this all fall apart? Sure. Wall St. is hesitant to be closely associated with cryptocurrencies, for obvious reasons. Some large financial exchanges, including the Chicago Mercantile Exchange, have already created financial products linked to the price of Bitcoin, known as futures. But the new operation at ICE would provide more direct access to Bitcoin by putting the actual tokens in the customer's account at the end of the trade.

Paul Chou, a former trader at Goldman Sachs who set up LedgerX, a regulated Bitcoin exchange, said his company focuses on large Bitcoin holders, rather than financial institutions.

"The reason we got into crypto was not to partner with a bank, but to replace them," Mr. Chou said. "We deal with crypto holders directly in a way that really takes advantage of Bitcoin's strengths, while avoiding brokers, banks and other institutions that take multiple cuts of the transaction."

Goldman will initially only be trading futures contracts linked to Bitcoin's price. But Goldman executives said they were looking at moving in the direction of buying and selling actual Bitcoins.

That would be a remarkable move in many ways, and no doubt have many regulatory hurdles. But banks hate losing a piece of the action – this will no doubt be a continuously evolving story.

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