Big banks have been some of the loudest critics as cryptocurrencies continued to grow as an asset class over the years. Only two years ago Goldman Sachs (GS) -1.85% stated in an investor call that cryptos like Bitcoin were “not an asset class”. They cannot generate cash flows like bonds, earnings through exposure to global growth, they are a bad inflation hedge, these were some of the reasons Goldman did not recommend cryptocurrency to their clients.
The bank wrote to their investors: “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,” (Fortune, 2022).
Now, the major bank has changed its tune. Facilitated by crypto financial services firm Galaxy Holdings Digital, the bank traded a non-deliverable Bitcoin option. This is a derivative tied to the price of Bitcoin, but it pays out in cash, rather than the underlying cryptocurrency. Galaxy’s press release did not specify the size of the trade made.
Goldman Sachs is not alone in embracing cryptocurrency after heavily criticising it as an asset class. Jamie Dimon, CEO of JP Morgan (JPM) -0.32% continued to speak out against crypto as his bank already began embracing the new asset class. In 2017 he called Bitcoin a “fraud” and even last October said that the crypto was “worthless”. (Fortune, 2022).
In 2018 JP Morgan, CitiGroup (C) -0.65% and Bank of America (BAC) -0.14% all vowed they would not allow their customers to buy crypto with credit cards issued by them. BoA took it even further banning their wealth management division Merrill Lynch from purchasing crypto related investments for their clients.
As the mood has changed at large financial institutions, the race to be the first has begun. Goldman Sachs is looking to lead by relaunching their crypto trading desk – which has lied dormant due to dropping crypto prices – offering a Bitcoin futures trading product and giving clients access to a fund that deals with Ether.
The bank has decided to partner with Galaxy Digital on most of its crypto ventures. Max Minton, head of digital assets for Goldman Sachs in the Asia Pacific area stated in a press release: “We are pleased to have executed our first cash-settled crypto currency options trade with Galaxy, […]. This is an important development in our digital assets capabilities and for the broader evolution of the asset class.” (Fortune, 2022).
*Stock prices taken on 22.03.2022
*Quiroz-Gutierrez, Marco (21. March 2022). Fortune: Goldman’s first over-the-counter crypto trade shows how digital currencies went from reject to hottest asset class on Wall Street. Last viewed on 22.03.2022 on https://fortune.com/2022/03/21/goldman-over-the-counter-crypto-trade-bitcoin/.