Goldman Sachs to Open a Bitcoin Trading Operation

SAN FRANCISCO — Most big banks have tried to stay far away from the scandal-tainted virtual currency Bitcoin.

But Goldman Sachs, perhaps the most storied name in finance, is bucking the risks and moving ahead with plans to set up what appears to be the first Bitcoin trading operation at a Wall Street bank.

In a step that is likely to lend legitimacy to virtual currencies — and create new concerns for Goldman — the bank is about to begin using its own money to trade with clients in a variety of contracts linked to the price of Bitcoin.

While Goldman will not initially be buying and selling actual Bitcoins, a team at the bank is looking at going in that direction if it can get regulatory approval and figure out how to deal with the additional risks associated with holding the virtual currency.

Rana Yared, one of the Goldman executives overseeing the creation of the trading operation, said the bank was cleareyed about what it was getting itself into.

“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Ms. Yared said. “For almost every person involved, there has been personal skepticism brought to the table.”

Rana Yared, one of the Goldman executives overseeing the creation of the trading operation, said the bank was cleareyed about what it was getting itself into.

“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Ms. Yared said. “For almost every person involved, there has been personal skepticism brought to the table.”

Justin Schmidt, left, who will run Goldman Sachs’s Bitcoin operation, with Marianna Lopert-Schaye, vice president of principal strategic investments, and Neema Raphael, who leads research and development.CreditAndres Kudacki for The New York Times

Still, the suggestion that Goldman Sachs, among the most vaunted banks on Wall Street and a frequent target for criticism, would even consider trading Bitcoin would have been viewed as preposterous a few years ago, when Bitcoin was primarily known as a way to buy drugs online.

Bitcoin was created in 2009 by an anonymous figure going by the name Satoshi Nakamoto, who talked about replacing Wall Street banks — not giving them a new revenue line.

Over the last two years, however, a growing number of hedge funds and other large investors around the world have expressed an interest in virtual currencies. Tech companies like Square have begun offering Bitcoin services to their customers, and the commodity exchanges in Chicago started allowing customers to trade Bitcoin futures contracts in December.

But until now, regulated financial institutions have steered clear of Bitcoin, with some going so far as to shut down the accounts of customers who traded Bitcoin. Jamie Dimon, the chief executive of JPMorgan Chase, famously called it a fraud, and many other bank chief executives have said Bitcoin is nothing more than a speculative bubble.

Ms. Yared said Goldman had concluded that Bitcoin is not a fraud and does not have the characteristics of a currency. But a number of clients wanted to hold it as a valuable commodity, similar to gold, given the limited quantity of Bitcoin that can ever be “mined” in a complex, virtual system.

“It resonates with us when a client says, ‘I want to hold Bitcoin or Bitcoin futures because I think it is an alternate store of value,’” she said.

Ms. Yared said the bank had received inquiries from hedge funds, as well as endowments and foundations that received virtual currency donations from newly minted Bitcoin millionaires and didn’t know how to handle them. The ultimate decision to begin trading Bitcoin contracts went through Goldman’s board of directors.

The step comes with plenty of uncertainties. Bitcoin prices are primarily set on unregulated exchanges in other countries where there are few measures in place to prevent market manipulation.

Since the beginning of the year, the price of Bitcoin has plunged — and recovered significantly — as traders have faced uncertainty about how regulators will deal with virtual currencies.

“It is not a new risk that we don’t understand,” Ms. Yared said. “It is just a heightened risk that we need to be extra aware of here.”

Article Credits to nytimes

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