It’s never easy to call the top of, well, anything in any market. Name it: art, baseball cards, certainly not stocks, bonds or housing.
But then again, things are looking a bit lofty for bitcoin, at least insofar as sentiment is concerned, possibly signaling some speed bumps ahead.
Goldman Sachs has gone back and restarted a cryptocurrency trading desk that had been launched in 2018 and then scuttled, Reuters reported. This time around, starting next week, the bank (as relayed by an unnamed “person familiar with the matter”) will start trading bitcoin futures and non-deliverable forwards for clients. The bank is also reportedly mulling a launch of a bitcoin exchange traded fund (RTF) and has issued a request to examine digital asset custody.
What a difference just a few months make. But then again, we’re in rarefied territory, where bitcoin has crossed the $50,000, and then the $58,000 mark and backed off again — yet remains leagues above previous rallies when the peak was around $20,000.
Goldman first set up a cryptocurrency desk in 2018, just as bitcoin’s price was falling from record highs, muting investor interest in digital coins.
Goldman said in May that cryptos are “not an asset class.” That is in part due to the fact that the cryptos do not generate cash flow or earnings and are not instruments of investment diversification.
“We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients,” analysts stated.
Now, obviously things have changed. Part of the pivot may be due to the fact that other larger players are getting involved, or are at least edging closer to getting involved, with bitcoin.
On a call with employees, J.P. Morgan Co-President Daniel Pinto stated, per CNBC, “if over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved. The demand isn’t there yet, but I’m sure it will be at some point.”
That clashes with previous statements by CEO Jamie Dimon, who in the past has called bitcoin a fraud.
New York, New York
And it should be noted that Wall Street is in New York, and New York is drawing scrutiny when it comes to cryptos. The state attorney general, Letitia James, stated this week that cryptos have dangers and will be the crosshairs.
“We’re sending a clear message to the entire industry that you either play by the rules or we will shut you down,” she said, according to a press release.
Parties will have to be registered with the AG’s Investor Protection Bureau. There’s no doubt that the major banks, such as Goldman, will do what they must do to satisfy regulatory and legal mandates. But one wonders what the client demand is going to be and whether they can handle downside.
Consider this statement by James: “All investors should proceed with extreme caution when investing in virtual currencies. Cryptocurrencies are high-risk, unstable investments that could result in devastating losses just as quickly as they can provide gains.”
In the meantime, Goldman and J.P. Morgan simply may be looking to give the public what it wants, even if the upside may be well overshadowed by the downside.