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Goldman Sachs Drops Plans To Establish Crypto Trading Desk

Goldman Steps Away From Trading Desk Plans, Still Intends To Create A Custody Service

Institutional investment has long been hailed as the future of this industry, as optimists claim that the interest of Wall Street firms will drive the growth of this early-stage market. But in an unexpected setback, as reported by Business Insider, Goldman Sachs, indisputably one of the most respected firms in the business world today, has just dropped its plans to establish a Bitcoin (BTC) trading desk.

As reported by Ethereum World News in October of last year, the Wall Street giant hinted that it had plans to offer Bitcoin (BTC) trading, but now it seems that this plan has been all but quashed.

According to those familiar with the matter, this will be a temporary move, as the firm will be delaying these plans for “the foreseeable future.” When queried about why this U-turn took place, the insiders noted that the regulatory uncertainty regarding this asset class is putting off Goldman’s top brass.

This decision will also see Goldman move plans to open a trading desk lower on the ladder of crypto-related products that the financial giant intends to offer. But as aforementioned, this setback is likely to be only temporary, as those familiar with the matter noted that this decision may be revised in the near future if the regulatory climate improves.

One of the insiders also noted that the firm’s executives concluded that “many steps still need to be taken, most of them outside the firm’s control,” before a firm like Goldman can make a legitimate foray into cryptocurrency trading.

A Goldman Sachs representative commented on the matter, reiterating a statement that was made in August:

“In response to client interest in various digital products, we are exploring how best to serve them in the space. At this point, we have not reached a conclusion on the scope of our digital asset offering.”

However, it isn’t all bad news, as Goldman is reportedly still making moves to establish a crypto custody service for its bigwig clients. Many cite a lack of proper custody solutions as a primary reason why institutions are hesitant to enter this market, so a fully-fledged custody service from a household name could prove to be a long-term asset for the crypto market as a whole.

Additionally, the financial company still intends to make markets for its clients to trade BTC futures, as Ethereum World News reported in May. But as fittingly alluded to by Brian Kelly, CNBC commentator and CEO of BKCM, many naysayers may gloss over the fact that custody and futures are still available and focus on the “negative” trading desk news instead.

CNBC claims that this news was the catalyst that pushed the cryptocurrency market down by over 7% within a few hours, but due to the unpredictable and volatile nature of this nascent market, some believe that this was just an untimely coincidence.

At the time of writing, Bitcoin has fallen to $6,900 and is down 6% on the day.

Photo by Wes Hicks on Unsplash

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Crypto Exchange Revenue May Double In 2018, Despite Market Downtrend

To be frank, the cryptocurrency market hasn’t been in an optimal position since the start of the year, with prices crashing by upwards of 70% after the monumental run-up of 2017. However, according to analysts from Sanford C. Bernstein & Co, an American investment management and research house, crypto exchanges are still expected to post hefty revenues by the end of 2018.

In fact, collective revenues could double to upwards of $4 billion this year in comparison to last year’s figures, even if the market continues to head lower. According to Bernstein’s analyst team, the purchase and sale of cryptocurrencies on spot market exchanges generated an approximate $1.8 billion of fees last year (based off average transaction/trading fees).

To give this figure some perspective, the revenues generated by crypto exchanges are 8% of the fees incurred by investors on legacy market exchanges, an impressing statistic to say the least.

Although some were skeptical of the $4 billion projection, evidence posted by top crypto exchanges seems to tell a different story. As reported by Ethereum World News in early-July, Binance is expecting to rake in nearly $1 billion in profits in 2018 alone, despite the dismal performance of the market in the first 8 months of the year.

Many attributed this substantial figure to the relatively high fees Binance charges, along with the rumored listing fee that some speculate is upwards of $2 million per token. While the latter source of revenue is an ongoing source of controversy, the former has been accepted by the crypto community as fact. For most traders, Binance charges a 0.1% fee for the maker and taker of an order. While a 0.1% fee may sound near-negligible to many, incurred fees can rack up over time, often eclipsing how much a trader may be charged by a traditional markets brokerage, like TD Ameritrade or Charles Schwab.

For many premier exchanges, it is much of the same, with many other crypto-to-crypto platforms charging fees that are comparable to Binance, if not even more. Additionally, exchanges that support fiat-to-crypto even charge additional fees for the deposit and withdrawal of fiat.

Legacy Firms Want In On Crypto, Or Do They? 

Taking the aforementioned statistics and forms of revenue into account, it quickly becomes apparent that this flowering industry remains lucrative. The potential for staggering revenue figures and high-profit margins has led Wall Street veteran firms, like Goldman Sachs and JPMorgan Chase, to metaphorically dip their toes in this budding space. Adding more credence to this thought process, the aforementioned analyst team wrote:

“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms.”

These individuals later noted that traditional firms could make a foray into this industry by providing custodian, asset management, and market-making services to an array of investors.

However, some fear that due to rampant regulatory concerns and rapidly-fluctuating prices that Wall Street firms will be hesitant to make a meaningful move on the market. As such, Coinbase, which accounts for a speculated 50% of the transaction revenue pool, may end up in an “unassailable competitive position” in the future.

While crypto space will undoubtedly continue to develop, it may be a few more years before traditional institutions offer spot market support for the masses.

Image Courtesy of Charles Forerunner

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Coinbase Index Fund Adds ETC, Minimizes Fee To Charm Investors

The market has tumbled by over 5%, but this has not stopped the development of cryptocurrency products from moving forward. As Ethereum World News reported previously, the Coinbase Index Fund was launched in mid-June, opening its doors for accredited investors willing to allocate a minimum of $250,000 to up to $20 million to this fund.

The fund works as follows — the assets supported by the fund are weighted by market capitalization and then added to the product as such. So an investor who invests $1 million in the fund today would get $720,000 of Bitcoin, $190,000 of Ethereum, $20,000 of Litecoin, $60,000 of Bitcoin Cash and $10,000 of Ethereum Classic.

However, upon the release of the institutional-focused products, some investors expressed worries about the fees and lack of support for a wide range of crypto assets. But as a Medium post from Coinbase Asset Management alludes to, these worries are being addressed with two new improvements that will be implemented into the firm’s in-house index fund.

Coinbase’s Bid To Attract Investors

Firstly, the premier cryptocurrency platform revealed that it would be reducing its management fee for the Coinbase Index Fund to 1% annually. This is a hefty 50% reduction in fees as Reuben Bramanathan, the Product Lead at Coinbase Asset Management, alluded to in the following comment:

“We’re pleased to announce that we are reducing the annual management fee for Coinbase Index Fund from 2% to 1% for all new and existing investors.”

The Coinbase executive went on to explain the reasoning behind this reduction, noting that this move was made to “attract investors who are familiar with lower-fee index funds in other asset classes.” Hopefully, this decrease to a bare minimum fee should entice institutional investors to invest into this flowering asset class, which may be needed in a today’s bearish market. This just might be a primary catalyst that may bring vast amounts of institutional interest into this market, driving adoption, innovation, and prices to new all-time highs.

Secondly, the Coinbase Index has been rebalanced to include Ethereum Classic (ETC) to account for last week’s listing of ETC on Coinbase’s array of products. This move was not unexpected, as a post from the cryptocurrency giant mentioned ETC support for the index fund. Along with announcing investor “exposure” to ETC, Bramanathan noted that the fund will continue to add assets moving forward, including the five cryptocurrencies (Cardano, Basic Attention Token, Stellar Lumens, ZCash, 0x) mentioned in a previous announcement.

This is just another move that brings validation to Ethereum Classic, which has been mentioned in headlines all across the industry as of late. Over the past weeks, ETC/USD support has been added to Coinbase as aforementioned, Robinhood and Bittrex, which will only increase the amount of fiat inflow this asset sees in the future.

Many are hopeful for the success of this product, as many believe that an influx of institutional interest can right the sinking ship that is the current cryptocurrency market.

Photo by Samson Duborg-Rankin on Unsplash

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Goldman Sachs: “Bitcoin Is Likely To Decline Even Further”

Many cryptocurrency proponents eagerly await the arrival of institutional interest, as a surge of capital will push this industry to new heights, in terms of price and innovation. As has been the common theme over the past months, institutions from legacy markets are finally starting to take notice of this promising asset class.

In mid-December, amidst the peak of the most Bitcoin “mania,” Goldman Sachs, one of the most respected firms on Wall Street, revealed that it was apparently in the process of creating a cryptocurrency trading desk. The cryptocurrency market reacted in kind to this news, with many expecting that this would be the single catalyst that would bring worldwide legitimacy to this often-controversial market.

However, as per a recent Business Insider article, Goldman Sachs has seemingly had a rather substantial sentiment shift, with the firm’s investment strategy group not expecting for Bitcoin to do well moving into the future.

In the investment giant’s midyear economic-outlook report, the aforementioned team at Goldman said that Bitcoin is likely to decline even further this year, while not giving an explicit price prediction. Sharmin Mossavar-Rahamani, a Chief Investment Officer at Goldman, said the following on the matter:

“Our view that cryptocurrencies would not retain value in their current incarnation remains intact and, in fact, has been borne out much sooner than we expected.”

While this sounds like an overall bearish statement, the inclusion of “current,” potentially indicates that future iterations of cryptocurrencies could see fit in the eyes of Goldman Sachs’ investment team. Sharmin later noted that cryptocurrencies, specifically Bitcoin, do not fulfill the prerequisites required to be classified as a currency. The executive added:

“We expect further declines in the future given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency: they are neither a medium of exchange, nor a unit of measurement, nor a store of value.”

This has been a common criticism made by well-known names in traditional sectors, with this being their primary qualm against this emerging breed of assets. What these critics tend to forget to point out, is that cryptocurrencies, or crypto assets or some now call them, have a potential for real-world utility.

The report went on to point out that further declines in cryptocurrency will not affect macro markets, as this industry represents just 0.3% of the world’s GDP at the time of writing. Further drawing attention to this figure, it was noted that Goldman believes that “they garner far more traditional media and social media attention than is warranted.”

Goldman Isn’t “A Monolithic Company With Only One Opinion”

These statements came to the surprise of many, as the New York-based firm has historically shown interest in offering cryptocurrency trading solutions and services.

In May, Ethereum World News reported that Goldman was going to start trading Bitcoin futures on behalf of its worldwide clientele. Additionally, the investment bank has held a stake in Circle, a now prominent trading service for institutional and retail investors alike. These investments and plans have led some to believe that this is an unwarranted “FUD” campaign. A user by the name of CaribbeanCoins wrote:

“What a bunch of manipulators. They know very well how to create FUD and take advantage of it to accumulate always more. They also know very well that the crypto will not disappear, too many issues now. These are the crooks of modern times! Shame on them.”

Despite the fears of market manipulation, Nathaniel Popper, the author of Digital Gold and a well-known fintech journalist at the New York Times, fittingly pointed out that this is only the sentiment held by one segment of the firm. Within complex corporate structures of thousands of employees, it becomes only a matter of time before conflicting opinions arise and clash with one another.

Taking a deeper look at these statements, it has become increasingly apparent that this sentiment is not seen across the board at Goldman Sachs.

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Hong Kong Investment Firm To Launch Crypto Custody Service For Institutional Investors

Hong Kong Investment Firm To Open Custody Service 

The South China Morning Post, a Hong Kong-based news source for English readers, recently revealed that a Hong Kong-based firm will be opening up a crypto-custody service in the near future.

According to the aforementioned news source, Funsang Investment Office, which is an asset management firm, has been receiving mounting interest about cryptocurrencies from its vast array of high-net-worth individuals and institutional clients.

This interest has prompted the management firm to begin discussing plans for a custody service, which Fusang’s CEO expects to open it in the fourth quarter of this year.

Henry Chong, the Chief Executive Officer of the firm, elaborated on the plans for service, stating that “Fusang Vault,” as the project is now called, will hold crypto assets for clients, while also auditing the funds on a periodic basis.

Chong went on to talk about why a service like Fusang Vault is needed, drawing connections between financial bonds and cryptos, further noting that crypto assets lack ownership data, unlike something like a land deed. He stated:

“Digital assets are akin to bearer bonds, whereby whoever that is holding the security is presumed to be the owner and there is no registration of ownership information of the security. Hence, the way we keep digital asset [sic] secured is of paramount importance.”

The CEO also pointed out that his firm is currently working with insurers, attempting to work out a system where client’s crypto assets can be covered under new insurance policies.

Growing Need For Institutional Investor Services, Especially in Asia

Institutional investment and interest have long been held as the holy grail of cryptocurrencies, with many expecting that an influx of institutional capital will bring this industry to the mainstream.

However, this industry currently doesn’t have the proper infrastructure to host many institutional clients. Additionally, the current state of the market encourages speculative behaviors, with a majority of retail investors looking to make a quick buck. Institutional investors, like the many notable Wall Street investment firms, have seen that, and have mostly shied away from opening their wallets for the industry.

But institutional sentiment regarding this market is quickly changing, with firms like Coinbase, Blockchain, and Circle all opening up services aimed at attracting investors from legacy markets. These services have already been met with success, despite their youth, with Coinbase Custody already reporting millions under management and Circle seeing billions in trade volume each and every month.

But as pointed out by Blockchain CEO Peter Smith, a majority of institutional clients are currently based in the U.S. and Western Europe, essentially leaving out the Asian market.

Despite being seen as the home of cryptocurrencies, institutional firms based in Asia have hesitated to invest into the cryptocurrency industry. This is why a service like Fusang Vault is important, opening up the industry to an array of new investors and institutional capital.

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