Goldman Sachs, Citigroup, and now Morgan Stanley are not only preparing to step into the crypto space but has also stated they are doing this as they observe an increase in demand from their clients. Cryptocurrency markets are sure to earn validation to a certain extent after these Wall Street giants come out with tradable instruments and products around Bitcoin.
Alistair Milne, the chief information officer at Altana Digital Currency Fund, notes that it is crucial for the markets to be taped in by regulated financial institutions as this indicated the rapidly growing demand for Bitcoin from institutional investors. He takes a pot shot on the banks via a tweet on his twitter account”
“Goldman, Citibank, ICE. Now Morgan Stanley. All launching Bitcoin products and services because there’s no institutional demand. Institutional money took the hedge fund industry from $300 billion to $6 trillion.”
Goldman, Citibank, $ICE … now Morgan Stanley
… all launching Bitcoin products/services because there's no institutional demand
— Alistair Milne (@alistairmilne) September 13, 2018
The Goldman effect
In mid-2018, Goldman Sachs CEO David Solomon announced that the firm will have its own Bitcoin trading operation. Though the firm is still working upon the details and haven’t launched the offering, it seems to have encouraged other financial institutions to explore the cryptocurrencies market. Solomon said in the aforementioned announcement:
“We are clearing some futures around Bitcoin, talking about doing some other activities there, but it’s going very cautiously. We’re listening to our clients and trying to help our clients as they’re exploring those things too. Goldman Sachs must evolve its business and adapt to the environment.”
Goldman Sachs has been vocally pro-bitcoin for a while now. In late November, the former chairman and CEO Lloyd Blankfein argued that it is arrogant to dismiss Bitcoin due to the lack of central governing authorities as there exists a chance that the consensus currency could gain mass adoption. He said:
“A five dollar gold coin was worth five dollars because it had five dollars worth of gold in it. Then they issue paper money that is backed by gold in the treasury. Then one day, they issue paper money that does not have the backing of gold. There was no pledge that if you turn it in, I’ll give you five dollars of gold. It is fiat money. I say this piece of paper is worth five dollars and so therefore it is five dollars and a lot of people did not take that for a long time. But, now they do without question. You move a little bit further and you get bitcoin that is not a fiat currency so I don’t trust, it and I don’t like it. On the other hand, if it works, I say maybe it was a natural progression from hard money to digital money.
The open-mindedness of Blankfein has played a key role for the regulated financial institutions at least in the US, to acquaint themselves with bitcoin and other cryptocurrencies.
While Goldman and Sachs took the precedence of entering the crypto space, the inclination of investors has played a crucial role as well. Financial institutions are often pushed to follow the emerging trends and adopt them. So, sooner or later, some of the other institutions would have forayed into the crypto space.
Albeit Milne said it sarcastically, he had a point. The sudden incline of banks towards cryptocurrencies demonstrate the rapid increase in the demand for the asset class from institutions. The plausible reason for the interest could be the current bear market so after all the low price range of most cryptocurrencies in not totally bad either.