For the first time in a while, the solid reason for a sell-off in the cryptocurrency in crystal clear. An initial report from Business Insider has claimed Goldman Sachs, the American investment bank has apparently shelved its plans to establish a cryptocurrency trading desk.
It’s the latest in a string of signs that the traditional finance sector is cooling on Bitcoin and the greater crypto market, in the aftermath of the great crash that began in December. The overall market capitalisation of virtual currencies has lost 75% of its value since its January peak, according to data from the well-known crypto site Coinmarketcap, slumping from $800bn to around $200bn now.
In the 48 hours after the announcement of the rumour, Bitcoin dropped $1,000 with other coins also losing value on Thursday – with Ethereum down 12%, Litecoin losing 11% and Ripple bleeding by 7%.
The Goldman news was summarised quite succinctly by Kyle Chapman, an analyst at venture capital firm Cosimo Ventures “Once the market sees Goldman stepping back and being patient, it starts to wonder ‘what does Goldman know that I don’t know’?” said:
“The market has trepidation about impending regulatory decisions.”
Although most retail cryptocurrency investors welcome big institutions into the market for stability reasons, the apparent withdrawal doesn’t help confidence in the market.
We mentioned this topic briefly back in July in trends for 2018.
The future regulatory framework remains unclear plus the US Securities and Exchange Commission (SEC) has warned some coins issued in initial coin offerings might be regarded as securities. This week the Ripple General Counsel left her position as Ripple prepare to defend several lawsuits. The claims filed would mean they are subject to complying with federal law. This is in conjunction with concerns around cryptocurrencies including potential money-laundering and market manipulation.
Craig Erlam, a senior market analyst at FX firm Oanda, said:
“It’s been a rough 24 hours for Bitcoin and its peers, with reports that Goldman Sachs has postponed launching a cryptocurrency trading desk due to the uncertain regulatory landscape.”
“The regulatory environment is going to be key to all of this and the fact that Goldman Sachs remains so concerned is clearly a blow.”
However, in a rare appearance to the media in a stark turnaround, The CFO of Goldman Sachs, Martin Chavez has come back to deem the rumour as “fake news.” He denied there was plans to ditch the trading platform and that the bank was working on a “bitcoin derivative” because of such strong demand from Goldman Sachs client’s.
Despite his aggressive, Trump-style denial, on the fake news claims he was quick to not put a timeline on delivering the new project and give any certainty around the details. He was quoted as saying:
“I never thought I would hear myself use this term but I really have to describe that news as fake news,”
“The next stage of the exploration is what we call non-deliverable forwards, these are over the counter derivatives, they’re settled in U.S. dollars and the reference price is the bitcoin-U.S. dollar price established by a set of exchanges.”
This is off the back of Goldman’s outgoing CEO Lloyd Blankfein tweeting October that Goldman was “still thinking about bitcoin,” and that the bank was “not endorsing/rejecting.” In the same month a spokeswoman from the company fuelled the fire stating “In response to client interest in digital currencies, we are exploring how best to serve them in this space.”
Goldman Sachs has been clearing bitcoin-linked futures contracts offered by the CBOE and CME since May and is providing clients liquidity for those futures proving they are involved, committed and entertaining the digital currency asset class. The bank has had to recently start to move in sectors of finance to diversify their offering. They recently formed a retail bank, never seen before, under the name “Marcus” in the UK earlier this year.
Problems with bitcoin’s volatility, security and storage of the actual assets have all been barriers to entry for institutional investors. Yet, big players like Goldman declaring an interest in the market on behalf of clients has improved interest and sentiment in the market. The key point here is that institutions and their plans still have strong effects on the cryptocurrency prices and can send shockwaves good and bad throughout a fragile cryptocurrency market more than ever.
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